Value as a quality.

• Autores: Francesco Colombi
• Localización: Creativity and survival of the firm under uncertainty / coord. por Attilio Celant, Txomin Iturralde, 2009, ISBN 978-84-692-5174-4
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • According to corporate finance literature, at least in the last half-century, value has been considered as a quantity. Large production, distribution, market and financing were the signals of this mentality. However, recent events related to the world-crisis have certified the inconsistency of this point of view.

    The question of creativity and survival of the firm under uncertainty is not a quantitative problem. The workforce�s and management�s future is not a matter of quantity.

    In the current global cash flow economy, the employment of mathematical tools and methods, the use of statistical and analytical systems, as well as the utilization of economic and financial instruments, represents an appropriate behaviour in order to achieve an effective growth of knowledge and an authentic human progress.

    But this is not enough. The quantitative data are not only simple measures, but also expressions of an effective power of the human thought. Every system or theoretical construction is constituted by body and soul. The body is quantity, the spirit is quality.

    This concept is very important in a conditioned view of Finance and Value Creation Theory, because the value is the unique and authentic justification of the market price and, perhaps, of firm�s capitalization. Today the abnormal difference, between value and price, is the most relevant reason of the financial crisis: in reality, the excess of speculative actions, the acceptance of above standard levels of financial leverage, the establishment of complicated and unaffordable tools for derivative products are only some of the reasons of the present difficulties and of the actual worrying perspectives.

    Waiting for future, I think that humanity will be focused more on quality than on quantity and, for this reason, since 19891, I�m proposing a simple evaluation model, named Method of Discounted Rates (META®), through which the value of an investment is the combination of two factors: the capital employed and the quality coefficient.

    The latter sums, to the unity, the present value of the difference between the Internal Rate of Return and the appropriate Cost of Capital, using a flexible discount factor, that considers both the investment�s timing and a regular growth rate. The model was completed and developed in 20032, when it was also extended in order to consider the company�s survival real option.

    This theory allows the investor to evaluate all the aspects that involve creativity, responsibility and quality: the size of the investment, the excess return as difference between the internal rate of return and the cost of capital, the role of time and growth, the contribution of the survival real option.

    All those elements should be seen as the drivers of a new financial responsibility.

    If we�ll be able to focus all our efforts both on a global innovative regulation and on a renewed ethic engagement, I think that the future of economy and finance will be guaranteed.