Corporate Value Creation. Karlson Lawrence C.
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Lawrence C. Karlson
Corporate Value Creation
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Corporate Value Creation
An Operations Framework for Nonfinancial Managers
LAWRENCE C. KARLSON
Cover image: © iStock.com/kentoh
Cover design: Wiley
Copyright © 2015 by Lawrence C. Karlson. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Karlson, Lawrence C., 1942–
Corporate value creation: an operations framework for nonfinancial managers / Lawrence C. Karlson.
pages cm. – (The Wiley corporate F&A series)
Includes index.
ISBN 978-1-118-99752-9 (cloth); 978-1-118-99715-4 (ePDF); 978-1-119-00044-0 (ePub)
1. Corporations – Valuation. 2. Corporations – Finance. 3. Stockholder wealth. I. Title.
HG4028.V3K364 2015
658.15'5 – dc23
2014041590
Preface
DURING MY CAREER I have been involved in numerous businesses in various industries: some doing well and others in need of drastic attention. At an early stage in my career, I realized that many businesses could improve their performance if shown how. So I began to develop presentations addressing some of the aspects of creating value in a business. I then systematically presented my thoughts to the various management teams I was involved with. The outcome was dramatic in many cases. Performing businesses did better. Turnarounds became profitable. The first codification of this material was documented in a series of VHS tapes I did in 1990 titled “A Smile Is Not Enough,” which have been used as training material for several firms.
When I stepped down as executive chairman of Spectra Physics I was no longer responsible for any day-to-day operations. While I had many board opportunities to keep me busy I still had “time on my hands,” so to speak. Given this state of affairs I decided to write a book that addressed what I perceived to be a need to combine the essence of sound business practices with an analytical framework that managers and executives who don't have an MBA could use to make better decisions and advance their careers.
I would like to thank all of the organizations and people I have worked with who have made this work possible. In particular I must give credit to my dear friend and editor, Patrick Edsell. Pat is a very capable executive and was my business partner when he was CFO of Pharos AB and later CEO of Spectra Physics Inc. He devoted an enormous amount of time editing many revisions, including some of the earlier manuscripts (which must have been painful). In fact his contributions have made this a much better book than it would have been otherwise. Others who have played a significant role in the preparation of this book are: Yuanshun Li, PhD, Assistant Professor of Finance, Ryerson University, who did a detailed edit of a final manuscript; James Gabriel, retired CEO of the Harris Group Inc., who also edited a final version; Jason Spera, CEO of Aegis Software Inc., who tirelessly edited the sections on the Internet in Chapter 6; Dennis Pizzica, VP and Treasurer of Berwind Corporation, who made numerous helpful suggestions during his review of Chapter 9; and Steven Ritter, partner, KPMG LLP, who provided advice on accounting-related matters. Finally this book would not have been possible without the support of my family, who never complained about my periodic absences from events and preoccupation with the manuscript. In particular I must thank my wife, Deborah, who read numerous manuscripts, made many helpful suggestions, and who didn't have to ask what I was doing when passing my office for the past many years.
⧉ About This Book
While there is material in all chapters that is very readable, a level of comfort with algebra is required in order to appreciate much of what is presented. Conventional wisdom would suggest that value creation would include at least three business activities: operations, investment, and financing. Within these milieus, management is expected to find the optimum combination of debt and equity to minimize the firm's cost of capital and to provide adequate working capital. In addition, one of their prime objectives is to grow the organization's revenue and profit by identifying and making investments in Research and Development; Property, Plant, and Equipment; Operations; Marketing; Sales; Human Resources; Systems; Procurement; and Finance and Administration. This book addresses these issues by offering an analytical operations framework that management can use to optimize the impact of their investment decisions on operations and to create value through the growth of the firm.
Chapters 1 through 3 lay the groundwork for subsequent chapters.
Chapter 1 is dedicated to explaining the Income Statement, Balance Sheet, and Cash Flow Statement, how they interact,