BCG report: Improving the Odds – Strategies for Superior Value Creation

By | July 25, 2013

Boston Consulting Group released their 14th annual report on total shareholder value (TSR). It was worthwhile read, even if you are not in corporate finance. They talk about global trends in economics, capital flows, investor expectations and business generally. Simply put, this is what BCG is telling their clients about increasing shareholder value.

I am not an investment banker (ask any of the teachers who graded my corporate finance exams), but TSR is concept that all consultants or corporate business types should know.

Total Shareholder Return (TSR) is something you learn in business school.  Even marketing and branding people get a good dose of TSR before they graduate. It’s measures how a company is doing financially – for itself, its shareholders, and its lenders.

The Boston Consulting Group does a good job of simplifying this into a simple diagram. The top of the diagram is market capitalization (profits x shares x valuation) and the bottom of the diagram is cash flow (dividends, share buy-back or retained earnings).

BCG TSRImproving the Odds: Strategies for Superior Value Creation (1.2Mb pdf) is a comprehensive 54 page report, but to summarize:

  • The global economy is headed for below-average growth rates
  • Investors are expecting lower TSR generally, and more specifically, are moving out of equities and more focused on free cash-flows (the bottom half of the chart above)
  • Companies are rich. They are profitable (median operating profits went from 12.8% to 16.2% from 2000-2011) and have enormous stockpiles of cash (cash as a % of total assets went from 4%-9% from 2000-2011).
  • Dividends are in. Less than 1/2 of companies offer dividends, and this is a great way to share cash-flow back to investors, especially in a low-growth environment
  • For growth, BCG broke down the different “value patterns” of companies
  • You have to know your company’s value pattern before your can set a future strategy

BCG value patterns

Increasing TSR: As a CEO, you need to decide which of the TSR levels (revenue, margins, valuations, dividends, share buy-back, or retain equity) will have the greatest impact on TSR – for your company, in your industry, during this business cycle. Not an easy job.

TSR Infographics: BCG has an interactive tool here, where you can see the top TSR producing companies from 2007-2011 across 21 different industries here. Who would have imagined that Tencent – a Chinese internet portal –  would be among the highest TSR producing companies in the world?

Tencent

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2 thoughts on “BCG report: Improving the Odds – Strategies for Superior Value Creation

  1. Eleanor Cheatham

    Your writing style is fantastic. I used to think I could write simple, engaging prose that clearly communicated complex ideas until I read your blog. Your posts help consultants everywhere.

    Reply
    1. consultantsmind Post author

      Eleanor, thank you for the compliment. I will try to live up to those expectations. Writing is a hobby, as I feel it should be for most anyone in professional services or the business of persuading clients to do the right thing.

      If you have not read ON WRITING, by Stephen King (yes, the horror writer). Please do. You will laugh and enjoy. Cheers.

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