How much cash flow risk should a company take on? How should it manage risks with extreme outcomes that could potentially bankrupt the company but are very unlikely to occur?
Answer to relevant QuestionsWhich type of business, a software company or an electric utility, would benefit more from improving ROIC than from increasing growth? Why? What is the total returns to shareholders (TRS) figure and why is it important? From a value-creation perspective, is it more important for a company to know where to compete or how to compete? That is, is it more important to play in the right markets or to be the best player in your current markets? Why could growth through a series of bolt-on acquisitions create more value than growth through a single large acquisition? (Consider premium paid and synergies created for each individual transaction.) What are the three components required to calculate economic profit? Determine BrandCo’s economic profit in year 1.
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