Investing in Competitive Methods

Topics: Net present value, Discounted cash flow, Weighted average cost of capital Pages: 31 (2418 words) Published: November 2, 2014
Investing in
Co
mpetitive Methods
Chapter 7

OBJECTIVES
Upon completion of this chapter, you will be able to:
1.  understand the role of the manager in adding value to the firm. 2.  develop an understanding of the investor’s requirements for return on invested capital.

3.  relate the estimation of cash flows, cost of capital, risk, and investment to the responsibility of adding value.

4.  relate the use of the net present value (NPV) discounted cash flow technique to the adding value imperative of all managers.

5.  apply the concepts of this chapter to the case study.

The Role of the Manager in Adding Value
to the Firm

•  In the past few chapters you have learned the

mportance of first scanning your environment.

i

•  This chapter will introduce the second step in the c
oalignment theory, strategy choice.

•  Making the right strategic choices requires

managers to invest in CMs that create lasting
economic value for the firm and its investors.
◦  Read pages 205-208 in your book

The Role of the Manager in Adding Value
to the Firm

•  In the Strategic Management Model the environment and strategy choice construct come together in a synthesis of s
trategic management thinking and financial management.

•  It is important that managers consider their competitive

m

ethod via the mix of products and services they offer.

•  Putting together the best possible mix can add tremendous value to the firm.
◦  Visit the Strategic Management Model again; it is present on the next slide.

Strategic Management Model

Competitive Methods
P1

S1

P2

S2

S3

P3

The Role of the Manager in Adding Value
to the Firm

•  Hospitality managers must capitalize on
opportunities that arise, as a means of possibly
adding value to their firm.

•  One new booming niche in the hospitality industry i
s group travel. Read about how different firms are
utilizing this new niche as part of their strategy
choice.
◦  Read Article ONE

Investor’s Requirements for Return on
Invested Capital

•  Now that you have learned about the importance of
managers making the right investment choices, it is
also vital to gain an understanding of how the
concept of capital fits into the picture.

•  The launching of a business requires money.
•  This money must come from investors who expect
wealth and returns maximization.
◦  Read Pages 208-212 in your book.

Investor’s Requirements for Return on
Invested Capital

•  When a firm does not have a high return on

nvested capital it greatly impacts the investors
and their decision to continue to invest in that
articular firm.

•  The performance of the stock market greatly

impacts investors and their return on invested
capital.

•  For a real life scenario:
◦  Read Article TWO

i
p

Cash Flows, Cost of Capital, Risk, and
Investment and Their Responsibility to
Adding Value

•  The decision made by managers from the strategic
perspective links to the cash flow streams of the
firm.

•  Their decision also impacts cost of capital, risk, and investment. And all of this components impact
value added.
◦  Read Pages 212-222 in your book.

Cash Flows, Cost of Capital, Risk, and
Investment and Their Responsibility to
Adding Value

•  The diagram on the next slide will present
graphically the merging of these different ideas i
n their responsibility to add value.

Synthesizing Coalignment Theory with the Realities
of the Firms Need to Produce Cash Flow
The Value Adding Model
Products/Services
P1

Environmental
Events
Assets and
Capital

Competitive Method

Outsource
Restaurant

Asset
Productivity

Expert
Systems

S1

Service
Training
Revenue
Maximization

Resource
Allocation

Strategic
Alliances

Adding Value Worksheet

Aggregated Cash Flow of
each Product
and Service
The Reality

Cash Flow
per Share

Cash Flows, Cost of...
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