Question

Answer each question succinctly yet completely. Be mindful of the multiple parts to each question.

2. Management consultants (McKinsey, Accenture, etc.) are generally hired to increase the intrinsic value of the firm. List the critical two elements—with direction—of the value maximization template on which a consultant may focus to accomplish this task, outlining in turn two generalized examples of potential actionable recommendations for each of the elements.

Answer 1

Answer: The two elements are:

1. Generating improvements in the fundamental indicators of intrinsic value. In this approach, traditional measures for determining intrinsic value are complemented with a set of more sophisticated metrics - for example free cash flow, Economic value added or cash flow return on investment

2. Another element is to get line managers to "think and act like owners ( part of value management) by linking compensation and incentives to some measure of intrinsic value such as EVA and CFROI. However this had unintended consequence of insulating line managers from the signals of capital market