Cycle of Value Creation

Dr. Sundar Venkatesh

Monday, April 9, 18
 Financial value creation
• Financial value creation is the result of, but not
only of,
• Investment decisions which should select assets
such that a business can maximize return on
assets
• Financing decisions which should minimize cost
of capital to the business
• Both investment and financing decisions are risky
which also affects financial value creation
sundar.venkatesh2008@gmail.com
2
Monday, April 9, 18
 Financial value creation

Investments Financing
in of
Assets Capital

Maximize returns Minimize cost of capital

sundar.venkatesh2008@gmail.com
3
Monday, April 9, 18
 Capital and Assets
Lenders
+ Capital Assets

Shareholders

Cost of Investment in
Capital Assets should
is generate
Expectation return higher
of investors than Cost of
Capital
sundar.venkatesh2008@gmail.com
4
Monday, April 9, 18
 Assets and Sales

Assets Sales

Assets are
intended to
generate
Sales

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5
Monday, April 9, 18
 Sales and Profits

Sales Profits

Sales are
intended to
generate
Profits

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6
Monday, April 9, 18
 Sales and Profits

Profits Cash

All profits
must finally
be realized as
cash

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7
Monday, April 9, 18
 The full cycle of value creation
Lenders

Capital Assets Sales Profits Cash

Shareholders

Investment in
Assets should Assets are Sales are All profits
generate intended to intended to must finally
Returns generate generate be realized as
higher than Sales Profits cash
Cost of
Capital

sundar.venkatesh2008@gmail.com
8
Monday, April 9, 18