Distribution Channels by Julian Dent

Author:Julian Dent [Dent, Julian]
Language: eng
Format: epub
Publisher: Kogan Page Limited
Published: 2017-12-24T10:18:14+00:00

Value creation and growth

Value creation and improving the numbers

Now we have looked at the two sides of the value creation tree (VC tree) separately, we can look at the way they come together and assess whether XYZ Co has done a good job overall of running its business in the last two years (notwithstanding potential troubles ahead!). In Chapter 8 we set out the principles behind value creation, ie that the operating profit generated should exceed the cost of the capital invested in the business to generate that profit. As we have seen, a service business should not need much capital beyond its working capital, so it should be able to create value with a reasonable level of profitability. Figure 16.1 gives a reminder of the VC tree for XYZ Co.

Figure 16.1 XYZ Co (a service provider) value creation tree

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