Challenges in creating value for your company

Creating value in a company is not just about short-term profit increases; it involves a series of strategies focused on sustainability and long-term growth. This process is relevant both for preparing a company for potential mergers and acquisitions (M&A) and for enhancing shareholder economic returns.

Understanding EVA as a value creation indicator

Economic Value Added (EVA), or economic profit, is a financial metric that reflects the actual value created or destroyed by a company over a period. Calculated as net operating profit after taxes minus the cost of capital, EVA highlights the company’s ability to generate profits that surpass operational and capital costs. This concept is essential for understanding how business strategies enhance financial returns for shareholders.

So, what does creating value mean?

Creating value means expanding the company’s capacity to generate revenues that exceed capital costs. This process involves increasing operational profitability, optimizing resources, and managing strategic investments that yield returns above market expectations.

Challenges in Value creation

Value creation is challenging, especially in aligning investments with real returns that surpass the cost of capital. Key challenges include:

• Improving operational efficiency

Continuous process innovation and adopting new technologies are essential to boost productivity and reduce costs, thereby strengthening the company’s competitive position.

• Optimizing capital structure: balancing debt and equity

Adjusting the debt-to-equity ratio can effectively reduce the cost of capital. A well-planned capital structure also enhances market perception and credit ratings.

• Investing in sustainable growth

Careful analysis of investments in new markets, products, or technologies is essential to ensure they yield adequate returns, aligning with long-term company objectives.

• Adapting to market changes with flexibility and innovation

Observing market practices and learning from leading companies and competitors are essential. This approach helps identify successful trends, adapt strategies, and avoid common pitfalls. The ability to swiftly respond to market changes maintains and increases company value. Business strategies should remain flexible and adaptable to new economic challenges.

Strategically addressing challenges

For any company aiming to create real shareholder value, a strategic approach is recommended. Implementing these practices not only enhances shareholder value but also positions the company for structured and sustainable growth.