Foundations of Corporate Success: How Business Strategies Add Value

By John A. Kay | Go to book overview

Table 13.5. Eurotunnel's Performance
Net cash flow Added value Excess shareholder
return
1990 -1,017 -341 669
1995 897 124 173
2003 1,135 659 -163
2020 3,629 3,371 -1,197
2040 11,433 11,605 -12,178
Present value
over life of
concession 3,236 3,236 3,236

Appendix: Added Value Statements

This appendix considers some more technical problems which arise in constructing, and interpreting, added value statements.


Added value, materials cost, and net output

Glaxo's added value statement was presented in Table 2.2. As was emphasized there, added value is less than operating margin or profits because profits are constructed after subtracting interest on long-term debt from operating margin, and added value is calculated after subtracting a return on equity capital from profits. The range of relationships involved is shown in Fig. A13.1.

Value added is described as net output in Fig. A13.1, and in Chapter 2. My use of the term added value to describe rent, and in a sense clearly distinct from the economist's use of the concept of value added, may be confusing to some. But the economist's use of the word rent is quite unhelpful to non- economists--who immediately associate rent with property. And value added is widely used by non-economists when they mean, at least approximately, what an economist would prefer to describe as rent. When people say, 'A developing economy should move to higher value added activities', they do not mean that the degree of vertical integration should be increased. They advocate a shift to more highly differentiated products.

As Fig. A13.1 shows, the added value statement focuses on the operating activities of the firm, in contrast to usual financial statements which emphasize the returns to its investors. For this reason, the added value statement is best considered at the level of the operating business, rather than for the firm as a whole. Often it is not possible to assess this from published accounts, but Table A13.1 provides a breakdown of the activities of BAT Industries. BAT is a UK-based international tobacco company which has recently diversified into

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Foundations of Corporate Success: How Business Strategies Add Value
Table of contents

Table of contents

  • Title Page i
  • Foreword iii
  • Preface vi
  • Contents xi
  • List of Figures xiii
  • List of Tables xiv
  • List of Tables xv
  • I - Corporate Success 1
  • Chapter 1 - The Structure of Strategy 3
  • Chapter 2 - Adding Value 19
  • II - Business Relationships 31
  • Chapter 3 - Co-Operation and Co-Ordination 33
  • Chapter 4 - Relationships and Contracts 50
  • III - Distinctive Capabilities 63
  • Chapter 5 - Architecture 66
  • Chapter 6 - Reputation 87
  • Chapter 7 - Innovation 101
  • Chapter 8 - Strategic Assets 113
  • IV - From Distinctive Capabilities to Competitive Advantage 125
  • Chapter 9 - Markets 127
  • Chapter 10 - Mergers 144
  • Chapter 11 - Sustainability 160
  • Chapter 12 - Appropriability 181
  • Chapter 13 - The Value of Competitive Advantage 192
  • Added Value Statements 211
  • V - Competitive Strategies 219
  • Chapter 14 - Pricing and Positioning, 1 221
  • Chapter 15 - Pricing and Positioning, 2 235
  • Chapter 16 - Advertising and Branding 251
  • Chapter 17 - Vertical Relationships 267
  • VI - The Strategic Audit 283
  • Chapter 18 - The Industry 285
  • Chapter 19 - The Firm 302
  • Chapter 20 - The Nation 320
  • VII - The Future of Strategy 335
  • Chapter 21 - A Brief History of Business Strategy 337
  • Chapter 22 - Conclusion 364
  • Value of the Ecu 369
  • Glossary 371
  • Bibliography 377
  • Index of Companies 395
  • General Index 399
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