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Unformatted text preview: 1-iCorponat* Valuatiom, Value-EasedMaraagemremtu amd eorporateuoveg"maE?eeTl r,..r \.rd inra.tpd $.0rl,r in th, \\:lI Cumpo-rlp IndF\ l0 V.dr, .r':,'. \.,urIrnvp.lmen. rvou d h"r c gros r to S2.2q4t..ullin8 'n nr 8.t- .,rrru.,l r.rte oI returnHid y.r pui rhP sl 000 rn Berl-hrnHathah'ay, you would nor\, havc $2,960,rvhich is an 11.5% annual rcturn. And if youhad been really smart (or lucky) and invested rr Dell. \ou sL'uld llow have gi17r'.\rf i.l' r,nr,lJ (. i,rlo i hhoppinB 2L.u .annual reiurnl Berkshir Hathaway andDcll compete in very diffcrent jndustries,nJ urrli,,F diffrrrn -l..rleF,ie.. )et borlrLdv" b.,,r(,' rl-, m.,.ke, b\ "hdrint dn,.p, rrrirB pl- lu.,.ph\ lhe) hr\..rcrt,J \.,lLLfor shareholders by foftsing on the Ireecash flows of their undcrlyinB busjnesses.Whn this focus is applied systematically.Irorg\nJt r.umpJ.r\ rt r...rlled v.rl ,based manailement, $'hich is thc .cntralth{rlne of this chapier.Berkshire Hatha$'ay's p mary stratetyh;ls been to gro| through acquisitions.hhffn Buffett, Berkshire's CEO, lvrote in nrecent letter to shareholders that hc seeks io\\1 'bu'rre-.e- ll-,rl Sencr.rl( ( rndcorsistenilv earn above-average returns onlh'.r..'pir.rl. Wh.n ' vrlu"lrrg J potentr,rl,1(.tui.iri,'n. BuffLlr n,v- he (omprrF. rl.purchasc price {,ith its "intrinsic value,whj. h ',f Jerl|rer .r. lhe dr-counred \aluy,.f rh, cr-h th,,r cdI be lalen out oi a bu,i-n.'ss during its remaining Iife-" Thus.Buffett's Brou'th strategy is Sovemed by theprinciples of value-based management.Instcad of gror'\'ing primarily throughacquisitions, Dell has chosen to grow "or8an-ic.lly" by expanding its existing businessesand developing ncw products and markets.Fnr mr^l ,,'nrprni... rdprd 8row,h n .al,*r,\|rrri- r.rpr.i erowlh ir opernlirg (dpil.rl.whrch r,J,r'F. Iee.r,h fl('(. BL,l Dell i5rcle1rtless in minimizing the amount of operJtirE (.rt.ilr'e,tuirLd tu,upporl "ale.. Tr.t.r.!. JL rints thc l.r-L i ).rr.. Dpll h". hdd oul.r.l|trlirt i,frf.,nn.rn. p in rhe d rivFr , ol \ alu(-basd management: (1) Iis sales have grownf.r.lrr lh.rr ll',\ . ve'.rge, /2) rr- prolilnargin has cxcccdcd the inctustry ai.erage,and (3) its capital requnemenis have remainedLowr than the industry average.Kccp Berkshife Hatha\^'ay's and DeU'sf,,.,,. ,'t) , .r.h flor,- ir m ind .i\ ) uu .e.,d tl,r" Voriom anildl,epo : olBe*shne Horhowoy li. oid DelCompde6518Chopier 15e le50LlfceTh r.xlbookh Web sirecontoins on Excel file lhorrhe chopErt col.ulolions.The file for lhh choprd i3F 12 Ch 15 Tool Kt.xh,ond w ncouroge youto op6n the file ond fol.Corporore Voluollon, Vdlu+Bosed Monosemeni, ond Coporote GovornonceAs we have emphasized throughout the book, maximizint shareholder valueshould be managemenfs primary objective. However, to maximize value, man-agrs need a tool for estimating the effects of altemative strategies. ...
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