Relative Strengths and Weaknesses of Financial Analysis Methodologies
Various authors from Value Analytix
In finance a considerable amount of methodologies are used to analyse businesses and to measure their performance. There is consensus in literature that value creation is the single best measure of corporate performance; good performing companies seem to create more value for all stakeholders than poorer performers. There is, however less consensus about what methodology should be used to measure value creation. The reality is that all of the methodologies that claim to be useful for "value analysis" are not the same. In many cases the fundamental assumptions underlying these methodologies are different. Consequently, these various methods do not all produce the same answers or insights into a business' performance or prospects
The focus of this article is a comparison of accounting measures, the Shareholder Value approach described by Alfred Rappaport, the Economic Value Added (EVA™) technique described by Stern Stewart and the Cash Flow Return on Investment (CFROI) approach of the Boston Consulting Group. Information and research about the efficacy of the different approaches are limited and is primarily provided by authors with strong commercial interest in the outcome of any research into the effectiveness of the methodologies. The aim of this article is to contribute to the developing dialogue on the appropriateness of different financial analysis techniques and performance measures. The view at Value Analytix is that it would be a mistake to believe that any single measure or analytical technique is perfectly suited to all types of financial decision support. Given that no technique can adequately fulfil all roles, a chart is included at the end of this article in which the four different financial analysis methodologies are rated by Value Analytix in terms of their strengths and weaknesses.
2.1 Accounting Measures
Accounting measures were developed for reporting and controlling purposes- which is still their main use today. Accounting measures provide
much information on the historical performance of a business, and they are often used to provide information on which to make decisions about future strategies and plans. Examples of accounting measures are profit, profit growth, return measures such as return on equity,
return on invested capital and return on investment, earnings per share, market to book ratio and price earnings ratio. All of these and other accounting measures can be found in standard accounting textbooks.
The main advantages of accounting measures are that they are easy to calculate, the data needed is readily available, and they are widely understood and thus easy to communicate. Due to the ease of communication, accounting measures are often used for reporting - both internally for management and externally with investors. Accounting measures describe historical facts in much detail, and give some idea of the historical performance and current status of the company.
However, one should be careful in how accounting measures are used, especially when they may be used to guide management decision making or to give a view of the future performance of the company. Accounting measures have several serious flaws when used for performance measurement or planning. Firstly, accounting measures are based on accounting figures, which are kept in order to comply with statutory reporting requirements. Such numbers were not developed to be used for performance measurement, and can also be reported quite differently, even within one statutory framework. When attempting to compare accounting numbers internationally, these problems become even more severe.
Accounting measures are also historically and short-term (i.e. single period) focused. When used for performance measurement or planning, accounting measures fail to take account for risk or the time value of money. Many account numbers primarily focus on managing the income statement, placing low weight on the actual cash flows which are in part driven from the balance sheet. Accounting measures such as earnings (and related ratios such as price-earnings) have also been shown to be both empirically and theoretically poorly correlated with the actual market value of companies.
As an example I would like to mention a Merrill Lynch report*, called Goodwill revisited. Their aim with this report is to spotlight inflated profit figures in The Netherlands and thus spotlighting earnings based return measures.
Merrill Lynch restated balance sheets and income statements for all AEX and MidCap index constituents and adjusted it more towards anglo-saksan accounting principles. All goodwill related mutations were taken into account. The book value of the goodwill was added to reserves, while depreciation costs were charged to the income statement. Under the amortisation scenario, a straight line depreciation period of 20 years was assumed, starting the year after amortisation.
The conclusion of the research report for the 25 AEX constituents were that earnings per share declined by 10.7%, the P/E ratio raised by 3.0 points to 23.1 and return on capital employed declined by 4.0% to 13.4%.
Accounting measures will always need to be used for external reporting and statutory and budgetary control purposes. They were not designed for use in valuing companies or driving strategic plans, and they are not suitable for these purposes.
* Note:Merrill Lynch, Goodwill Revisited, Global securities Research & Economics Group, Global Fundemental Equity Research Department 30 October 1997.
3.1 Shareholder Value Analysis
The Shareholder Value Analysis (SVA) links strategies directly to cash flow and value creation. Using SVA involves management expertise, strategic planning frameworks such as Michael Porter's value chain, and so called value drivers to translate strategies into forecasted cash flows. The drivers include:
- Sales growth
- Operating profit margin
- Tax rate
- Incremental working capital investment
- Fixed capital investment
- The cost of capital
- Value growth duration
The Shareholder Value approach incorporates both systematic and specific risk into its analysis. Systematic risk is included through the cost of equity in the weighted average cost of capital (WACC) using any of a number of methods depending on the situation at hand. These methods include CAPM, APT, which can be calculated using peer group analysis, cross sectional analysis and others. The cost of equity is relevered using the Hamada algorithm whenever future financial leverage (gearing) is anticipated to differ from past levels. Specific risks are explicitly incorporated into the cash flows using scenario analysis.
The last value driver, value growth duration, corresponds to the length of time that the firm is expected to create value (i.e. earn returns above its cost of capital). It varies from less than three years for companies whose strategies are quickly emulated (e.g. high technology firms) to over 20 years for companies which strategies take a long time to reproduce (e.g. natural resource companies).
The shareholder value approach calculates corporate value as follows:
- Forecasted cash flows are calculated for a length of time corresponding to the value growth duration.
- Theoperational cash flows are discounted by the cost of capital to determinewhat is called the "value created during the forecast period".
- Tothe "value created during the forecast period" the present value ofthe firm at the end of the forecast period is added. This is known as the "residual value". The market value of non-operating assets is then added to the market value of operating assets to get the corporate value of a company. The residual value often comprises 50% or more of total corporate value and is determined using different approaches in different situations. Perhaps the most common method of calculating residual value is to take a perpetuity of the net operating cash flow before investment in the final forecast method (normalized for non-current events). Other approaches include "perpetuity with growth" (used in very rare situations when the creation of value is anticipated to continue indefinitely) and "break up" value (used when the firm ceases operations at the end of the forecast period).
The corporate value can be transformed to shareholder value by subtracting the market value of debt and other obligations.
The shareholder value approach has gained popularity mainly because of the following reasons:
- The approach uses complete information. It incorporates historical, current and forecast information in determining the amount and timing of future cash flows, the value growth duration and systematic and specific risk in its analysis.
- The SVA methodology concentrates on the residual claimants of the company. By choosing the strategies which create the highest value for the shareholders, the management also creates the highest value for other stakeholders like employees, other investors in the company and customers.
- In the literature many surveys state the high correlation between cash outflow, downside stock price movements and decreasing shareholder value. From this research and experience, the discounted cash flow approach to understand investor expectations has established its position as a pre-eminent, but not exclusive, analytical tool for value based management.
3.2 Comments on SVA
Common comments on the SVA approach are the subjectivity, the high sensitivity of the residual value to the cash flow, that this approach relies on CAPM as a measure of determining the discount rate and that the approach has shortcomings in the area of compensation and to some degree the establishment of micro performance measurement systems within small business units or for specific business functions.
It is correct to say that the SVA approach is subjective. The SVA approach preferably involves specific forecasts about operating factors into the future. Because it incorporates managerial judgement and strategic thinking, subjectivity is also necessarily added.
However, certain other approaches, like ratio-analysis and the BCG's CFROI, avoid this subjectivity only at the cost of relying on historical data and applying restrictive assumptions about the future. Also, different assumptions can be tested in an SVA model, showing the impact on value and revealing inconsistencies.
Sensitivity of the residual value
Residual value is highly sensitive to the cash flow in the last forecast period and the rate of growth in perpetuity. To adress the cash flow concern, the SVA approach excludes non-recurrent events and normalizes the cash flow used as the basis for residual value.
Value Analytix argue that residual value should be highly sensitive to the growth in perpetuity assumption. A firm that can create value indefinitely into the future (i.e. one with a perpetuity growth greater than zero) should be much more valuable than one that does not. It should be stressed that the perpetuity with growth assumption for residual value is only applicable to the very few firms that have an economic advantage that cannot be reduced by competition.
Reliance on CAPM
The SVA approach does not solely rely on CAPM as a mean of determining the discount rate. The SVA methodology can incorporate any method of estimating systematic risk, be it CAPM, APT or any other approach.
Shortcomings in the area of compensation
Compared to the EVA™, the SVA approach poses the most important question in performance measurement less directly. That question is whether a company earns a better return on its investment than its cost of capital. A direct result of asking this question is that the focus is on returns higher than the cost of capital, even if that return is decreasing. Also EVA™ focuses more directly on the period shareholder value is created instead of when the actual operational cash flow (free cash flow) starts rolling in. However, since the focus of SVA is future performance, it is difficult to apply when measuring historic performance. The EVA™ technique will be discussed in more detail in the following section.
4.1 Economic Value Added (EVA™)
Value based management (VBM) techniques including shareholder value analysis (SVA) and Economic Value Added (EVA™) are intended to be useful in helping to choose, monitor and reinforce business strategies which will in turn increase total shareholder returns (TSRs).
Stern Stewart & Co., the management consultancy company which accredited with its popularization, describe EVA™ as "a simple financial measure of performance". Perhaps more accurately, EVA™ is a performance measure which is easily conceptualized, but often more difficult to apply effectively in practice.
Conceptually, EVA™ is the residual income which remains after operating income has been reduced by an additional charge designed to capture the dollar value return investors can be expected to require, given the amount of capital they have tied up in the business.
In its basic form, EVA™ can be easily calculated as follows:
1. Take sales and deduct operating expenses and taxes. The result is termed NOPAT, or Net Operating Profit After Taxes.
2. Estimate the capital charge as total capital (i.e. debt plus equity in a simple case) times the cost of capital.
3. Subtract the capital charge from NOPAT and what remains is EVA™.
The method described above is termed the Capital Charge Method, and can be rewritten to provide practitioners an alternative method of calculating EVA™. The second approach is referred to as the Spread Method and the corresponding formula is:
EVA™ = Total Capital * (NOPAT/Total Capital - Cost of Capital)
NOPAT/ Total Capital is referred to as the Return on Capital Employed. Both ways of calculating EVA™ are arguably easy to understand. The difficulty in application, however, is in estimating the main EVA™ drivers - NOPAT, Total Capital and the Cost of Capital - especially since over 150 possible adjustments to these drivers have been estimated. The process of deciding which adjustments to make, and how to make them, is what makes EVA™ more difficult (and subjective) when applied in practice.
The first stage in an EVA™ analysis is to adjust the NOPAT and Capital as reported in an accounting framework so that they can reflect more accurately true economic values. This is what Stern Stewart & Co. refer to as "grossing up the accounting book value into an economic book value".
The adjustments are of two types: those items we intend on capitalising and the cash we would have paid/ received if not for our debt/financing strategy. Common adjustments to NOPAT include:
- Any goodwill amortised needs to be added back.
- The increase in any deferred tax reserve is added to NOPAT (or subtracted from cash taxes).
- Any increase in a LIFO reserve is added.
- Since EVA™ separates financing (Debt & Equity) from operations the tax provision figure reported on the income statement should be adjusted so that it reflects the tax that would have been paid had we not paid less tax due to debt (this is known as the interest tax shield).
- Those expenses we have removed from the income statement should now be capitalised. Capital is adjusted as follows:
- Add cumulative amortised Goodwill and the accumulated Goodwill written of directly to reserves.
- Add the deferred tax reserve.
- Add any LIFO reserve.
- Finally subtract revaluation reserve.
There are of course many more adjustments that can be made either to reflect an item that should be capitalised rather than expensed, or to establish a common framework across accounting regimes. EVA™ analysis requires its practitioners to make judgements about the definition of NOPAT and Capital Employed in a business and these adjustments, not unlike many accounting adjustments, may be the product of negotiations and judgements rather than rules or regulations.
4.2 Comments on EVA™
Proponents of EVA™ argue that valuation using EVA™ and SVA produce the same results. Proponents further argue that since EVA™ can be used for performance measurement and compensation, for which SVA is less suited, it should be used for strategic planning and valuation analysis rather than SVA. If EVA™ and DCF produce identical valuation results, why complicate things by using two systems when EVA™ can replace SVA for valuation and strategic planning?
Unfortunately the above argument has three flaws:
Firstly, the equivalence with SVA for valuation purposes can be mathematically
correct but not necessarily helpful in providing a profile of cash
flows on which to base a company's funding requirements, nor in understanding
the short term versus the long term risks in a particular investment
or valuation decision. The mathematical equivalence is achieved because
the EVA™ formula is a modified version of a standard DCF formula within
a mathematical construct in which all of the adjustments in the EVA™
formula to the DCF results must net to zero. The result of this construct
is that it does not matter what beginning capital base is used in
an EVA™ valuation- the resulting value will always be identical.
Secondly, in EVA™ the value of the starting capital base (one of the most subjective components of EVA™, since you could have adjustments over varying periods of time) determines whether future EVAsTM are positive or negative and by how much. This means that where there is a low capital base it is easy to generate large positive EVAsTM even though standard DCF analysis can show clearly that the business is locked into a value destroying strategy (i.e. returning less than its WACC). The difference with SVA is quite straightforward in that sensitivities using EVA™ are focused on a single period or historical analysis and therefore reflect annual changes in performance. SVA and EVA™ value drivers will be very different from one another and managers will undoubtedly reach very different conclusions when comparing a set of EVA™ value drivers with a set of SVA value drivers.
Thirdly, the mathematical equivalence only holds true prior to any adjustments made to the components of EVA™ (either NOPAT or Capital Base) over the course of a forecast. If any such adjustments are made -which will normally be the case for performance measurement purposes- the mathematical equivalence between DCF and EVA™ valuation is lost.
The following tables illustrate the first two of the above problems - namely that the capital base used in EVA™ valuation is both irrelevant in terms of impacting value, and misleading in terms of analysing periodical EVA™. The tables are adapted from those developed by CSFB in a document entitled "EVA™ Primer" (1996).
Figure 1 illustrates a standard DCF analysis, whilst
figure 2 illustrates
the EVA™ being generated using the net book value as the beginning
capital number. As discussed earlier, the total value produced is
identical, but the EVA™ generated on a periodic basis are completely
contrary to the cash flows actually being generated during the same
Figure 3 illustrates the EVA™ being generated assuming that the beginning
capital balance is equal to the worth of the company if it only returned
its cost of capital (i.e. no value creation since NOPAT = Beginning
Capital * WACC = $3,700 * 10% = $370) based on the NOPAT for year
0. This methodology reflects accurately the value created. Note that
the value remains the same as in figures 1 and 2, but that the annual
EVA™ figures are very different. This would have huge implications
for both strategic planning and compensation systems.
To prove that the capital base is truly irrelevant in calculating
the total value using EVA™, figure 4 uses the number of miles between
London and New York as the beginning capital base. Again the final
value is the same, but the annual EVA™ figures must be considered
4.3 Additional Questions to Ask
Before making any managerial decisions or judgements on the basis of EVA™ we would suggest that you would need to know the answers to the following questions before condemning on operating unit or praising another one:
1. Are they all using the same accounting standard?
2. Are all transfer prices "netted out"?
3. Are there any tax driven accounting treatments that impact on these figures?
4. Are all of the EVA™ adjustments consistent across countries?
5. Do the numbers for each region reflect a steady state of each business unit?
6. Are they all reflecting local discount rates or a group rate in dollar terms?
7. Do these single period number tell me whether or not shareholder value has been created?
8. Would you alter your capital allocation policies on the basis of these numbers?
9. Would you alter the companies portfolio or strategy on the basis of EVA™ figures?
The Boston Consulting Group CFROI Approach *
5.1 The Boston Consulting Group CFROI approach
The keystone in the BCG approach is Cash Flow Return on Investment (CFROI). It is analogous to the internal rate of return (IRR), but the way they calculate the "investment" terms and forecast cash flows is distinctive. The components of CFROI are:
- CurrentDollar Annual Cash Flow: Last year's inflation adjusted cash flow.
- Current Dollar Gross Investment: Inflation adjusted total assets minus non-debtliabilities and intangibles.
- Current Dollar Value of Non-Depreciating Assets: Inflation adjusted current assets and land.
- Asset life: Average depreciation term for all assets.
BCG calls the "investment" term in the CFROI calculation "Current Dollar Gross Investment". This is calculated by converting historical cost financial statement data into current costs. This is necessary because the BCG approach uses real cash flow discounted by the real cost of capital (this is just as conceptually sound as discounting nominal cash flows by the nominal cost of capital). It also involves many complex adjustments to financial data including goodwill and inventory.
Note: The comparison of CFROI and SVA was seveloped by Tom Nodine, formerly of Booz Allen Hamilton, Australia.
The next component of CFROI to be calculated is Current Dollar Annual Cash Flow. To estimate these future cash flow s, BCG employs the following steps:
1. It estimates the remaining useful life of depreciating assets using asset life.
2. It estimates the annual cash flow of the assets, which are expected to produce through the end of their economic lives.
3. It allocates non-depreciating assets to depreciating assets on a pro-rata basis and assumes that they are "recovered" (i.e. converted into cash) at the end of the economic life of the depreciating asset.
BCG then calculates CFROI as the internal rate of return that equates the present value of future cash flows with the estimate of the Current Dollar Value of Gross Investment.
5.2 Comments on CFROI
Similar to Value Analytix, BCG assumes that a firm's rate of return (in this case CFROI) will eventually be driven down to a competitive equilibrium. Unlike Value Analytix, the BCG approach assumes that this process takes 40 years to complete in all cases.
To calculate corporate value, BCG takes the Current Dollar Value of Gross Investment and applies its CFROI to produce future cash flows over a term equal to the depreciating life of the assets. When retired, depreciating assets are assumed to be replaced according to a historical asset growth rate.
However, both the cash flows and asset growth rates decay exponentially from their recent historical rates to country-wide averages over the 40 year horizon according to what BCG calls the "Fade Rate". For example after 40 years, all Australian firms are assumed to have CFROIs of 5.5% and Real Asset Growth Rates of 2%.
To discount the cash flows, the BCG approach utilizes one "market derived discount rate" for all businesses in a country. In short, BCG uses the country average CFROI and Asset Growth Rates to project "market cash flows" and uses the current value of the market to backsolve for the discount rate. This rate is always adjusted for investor's taxes and sometimes adjusted for financial leverage. The BCG approach seems to ignore specific risk entirely.
Why are the SVA and the BCG models so different? The answer lies in their original purposes. BCG's 1993 brochure mentions that the SVA approach was "developed especially for corporate planning and related applications". This is in contrast to their model which was, "designed as a tool to assist the institutional investor in picking stocks".
For picking stocks, BCG needs a systematic means of sorting through the historical data of thousands of businesses to identify potentially undervalued companies. They also need to be able to backtest the model to identify how well it did in the past. Developing separate yearly cash flow estimates, cost of capital and forecast periods for each company, would simply be too time consuming for their purpose.
Accordingly, they developed a series of assumptions (cash flow determined by a 40 year CFROI fading to country-wide averages, constant cost of capital, etc.) that would allow them to avoid explicit forecasts and be able to backtest their model.
While these assumptions are useful in helping BCG to pick stocks, they make their model less useful for corporate planning. Corporate planners are primarily interested in one company, its business units and competitors. In this situation, producing explicit forecasts that match proposed strategies becomes much more manageable and appropriate.
Corporate planners want to understand how changes in strategy will affect their company's value. If you have the average company with the average strategy and the average investment strategy and the average level of systematic risk is not going to change, then BCG's approach will model your firm effectively.
For any company that is not average on all these accounts, the BCG model will miss the distinctions. For example, would a natural resources company really want to "fade" to the same CFROI and the asset growth as a computer company? BCG's model would have it that way despite the fact that the rates of return and investment growth vary significantly from firm to firm and industry to industry.
The SVA approach is more appropriate for corporate planning because it includes strategy-specific forecasts. These bring out the distinctions in alternative strategies and allow corporate planners to measure their effect on a firm's value.
The strategic implications of the SVA model are also more clear and intuitive. Strategies that will legitimately increase a firm's value through their net effect on sales, profits, taxes, investments, the cost of capital and value growth duration should be undertaken.
Because BCG's model was designed for picking stocks, its strategic implications are less straight forward. If we follow the model to its strategic conclusion, we could increase value arbitrarily by growing assets (any assets) as fast as possible. In fact, the sooner we do it the better because our CFROI is likely to be downward sloping over the next 40 years! Clearly, neither implication makes economic sense.
Applying BCG's assumptions to strategic planning levels the very distinctions we are trying to bring out.
Several other aspects of their model that are suspect.
1. With respect to the CFROI calculation, how can it be reasonable to assume that a firm's non-depreciating assets will be converted to cash under anything other than liquidation scenario? This assumption seems unreasonable whenever the firm being analysed is expected to be a "going concern".
2. How can a firm's cash flows be logically linked to specific assets? Unless all depreciating assets have the same life, this assignment process will affect the final result of the CFROI calculation.
3. BCG provides no description of how the inflation adjustments are made in determining Current Dollar Value of Gross Investment. Without knowing this process, it is impossible to determine whether the adjustments result in a reasonable value for the "investment" term in the BCG's CFROI calculation.
4. BCG's application of its approach to identify undervalued stocks seems to ignore market expectations and assume that stock markets are not weak-form efficient (i.e. abnormal returns can be earned by using historical information only).This contradicts studies conducted around the world showing that weak form efficiency is satisfied. If BCG had identified a method of successfully identifying undervalued companies, they could make much more money using it as an investment strategy themselves that they could by trying to sell it to others.
5. BCG's calculation of Current Dollar Gross Investment excludes Goodwill which often has economic value.
6. BCG's calculation of Asset Life corresponds to accounting depreciation, not economic depreciation. ASSET LIFE = GROSS PROPERTY, PLANT AND EQUIPMENT/DEPRECIATION = AVERAGE DEPRECIATION PERIOD
7. One of the statistics used to support the BCG model is flawed. BCG's primary "proof" that their model applies in Australia is an analysis showing an R-Squared statistic of 40% when "Value/Cost is plotted against CFROI minus Discount Rate". Since BCG defines "Cost" and "Investment" as Current Asset Value, both sides of the regression equation contain the factor "1/Current Asset Value". In this situation you would be surprised if there were not a significant R-Squared statistic. For a discussion of this error, see Eynon, Philip J. and Nodine, Thomas H., "Seven Critical Success Factors for Value Creating Acquisitions" M&A Europe, March/April 1991, p.5.
4.3 Additional questions to ask
1. In the BCG materials reviewed, the Fade Rate changed from
5% to 20%:
- How is the Fade Rate Determined?
- What is the basis for the change?
- How can we be confident that it is right now?
- On what basis does it vary from firm to firm?
2. How is specific risk incorporated into the BCG model?
3. Why did they not choose to use the standard Hamada algorithm
to adjust their country-wide cost of capital for financial risk?
4. How are historical cost financial statement data converted
into a current cost basis for use in the CFROI calculation?
5. What are the results of backtesting BCG's model?
5.4 Why managers are better off with the SVA approach
With a basic understanding of the models, we can now get back to the reasons that our clients are better served by the SVA model.
1. The SVA approach is better suited to corporate planning:
As mentioned earlier, the SVA approach was, "developed especially
for corporate planning and related applications," while the BCG approach
was "designed as a tool to assist the institutional investor in picking
This difference in focus has lead to BCG to employ assumptions that ignore important distinctions between corporate strategies and make their model less appropriate for corporate planning.
2. The SVA model is more explainable:
SVA uses terminology that is much more comprehensible to operating
managers. There are no problems talking about sales growth, profit
margins, and investment with operating managers. Even without an accounting
/ financial background, managers understand the major factors of the
model. This may at first appear to be a small issue, but it becomes
critically important when describing and implementing new strategies.
The BCG approach is not nearly so intuitive. It would be difficult to explain CFROI to the average operating manager, much less his or her specific role in making it happen.
3. BCG's model may not be suited for application to non-US firms, or natural resources companies.
In the US, BCG says that their model achieves an "acceptable" tracking
for 80% of the Value Line 1,400 Industrials. Stated differently, they
believe that their model does not track acceptably for 20% of the
largest firms in the US. Even if their model was fully applicable
to a market how can we be sure that a given client is not one of the
20% to which the model does not apply?
BCG has had problems with their model in Australia. This is primarily because Australian accounting standards allow more freedom to restate asset values than the US GAAP allow. This problem is exacerbated in natural resource companies where many of their assets don't "hit" the balance sheet in the US until they are unearthed, but are often "written up" in Australia. BCG openly admits that the application of their model to natural resources companies is, "still in the embryonic stage". Their 1993 brochure states, "it may well prove that the unusual characteristics of the resource sector may best be handled by a traditional DCF model".
Our conclusion is that although EVA™ is a valuable contribution to compensation systems, it remains a less attractive methodology for Value Based Management where the objectives is to reduce the single year focus that budgeting systems inflict on operating businesses.
The race between SVA and BCG for the best corporate planning model is not even close. BCG assumes away the very distinctions that are important in identifying optimal strategies.
In conclusion, it should be stressed that there is no panacea in terms of methodologies -different methodologies have different strengths and weaknesses. A summary of the Value Analytix view is shown in the table below.
|Correlation to share prices||**||*||*|
|Ease of Analysis||**||**||***|
|Ease of Communication||**||***||***|