Decoding value creation

In today's competitive business environment, value creation has become a critical focus for companies striving to enhance their market position and secure long-term success. It is more than just a buzzword; it is a strategic imperative to drive substantial and sustainable growth.

At its core, value creation is the increase in enterprise value (EV) that results from transforming business operations and strategies to increase potential and improve financial performance. One way to quantify the value creation impact of an initiative is to multiply the change in EBITDA by the change in multiple to get the new enterprise value. And KPMG professionals can help you influence each aspect of that equation.

KPMG professionals are dedicated to helping their clients navigate the value journey, leveraging their experience to identify value levers that can transform business models, enhance financial performance and, ultimately, increase enterprise value.

Our approach

At KPMG, our approach to value creation is rooted in advanced analytics that are designed to drive speed, depth of insights and quantifiable value by combining leading technological tools with the extensive knowledge and experience of our professionals.

KPMG value creation specialists bring deep industry and functional experience to engagements, with the aim of ensuring clients receive tailored, high-impact advice as they strive to identify, quantify, prioritize, implement and measure their value creation activities.

Identify key value drivers

KPMG professionals start by conducting a thorough diagnostic to map out your company's value driver tree. This involves pinpointing the strategic and operational factors that significantly influence your financial performance. By understanding these core elements, we can target areas with the highest potential for improvement.

Quantifying opportunities

Using our 100+ proprietary Analytical Building Blocks (ABBs), KPMG specialists perform detailed assessments and create performance baselines for highly specific value levers. This data-driven analysis allows us to validate hypotheses and measure the potential uplift enterprise value. We employ robust financial modeling to project the expected returns from each initiative.

Prioritize initiatives

Prioritizing initiatives based on their expected financial impact, business risk and implementation complexity. The process seeks to ensure that investments are made where the expected return is within the cost and risk appetite of the business. This strategic sequencing enables KPMG professionals to tackle the most impactful opportunities first, optimizing the use of resources and time.

Implement the plan

We develop a detailed implementation roadmap, sequenced to rapidly deliver cash-positive results. KPMG professionals are supported by advanced workflow tools and change methodologies to help drive the transformation needed to realize the identified value. We monitor progress closely and adjust as necessary with the aim of ensuring that the targeted outcomes are achieved effectively and efficiently.

Continuously measure value

Rapid course-correction can be enabled when new trends or disruptions emerge — based on reliable data and a clear understanding of the business objectives. KPMG professionals identify lessons that can be shared across the enterprise. With a granularity of data, new opportunities to create incremental value can be uncovered.

Focusing on the right levers

Determining the right value creation approach is a nuanced process influenced by various factors. Three pivotal elements shape how value creation is assessed:

Lifecycle stage
Sector variables
Cost of capital

A company’s lifecycle stage plays a crucial role in determining the appropriate value creation metrics. Businesses typically progress through four key stages: start-up, growth, maturity, and decline or stagnation. Each phase requires distinct strategies and focuses.

Start-up

Focus on:

Establishing sales
Achieving product-market fit

Important KPIs to consider:

Customer acquisition cost
Customer Lifetime Value (CLV)
Monthly active users

Growth

Focus on:

Scaling operations
Optimizing processes

Important KPIs to consider:

Revenue growth rate
Gross margin
Customer retention rate

Maturity

Focus on:

Maintaining market position
Managing costs

Important KPIs to consider:

Return on invested capital
Free cash flow per share
Operating margin

Decline

Focus on:

Managing cash flow
Exploring turnaround strategies

Important KPIs to consider:

Cost reduction
Asset turnover ratio
Divestiture proceeds

Different industries have distinctive drivers that can influence value that must be recognized for accurate measurement. Some industry examples include:

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Consumer Goods & Retail

Focus on:

Product innovation
Market expansion

KPIs include:

Pricing strategies
E-commerce optimization
Store footprint rationalization

factory

Industrial Manufacturing

Focus on:

Streamlining the supply chain
Optimizing logistics

KPIs include:

Supply chain efficiency
Cost of goods sold
Asset utilization

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Financial Services

Focus on:

Managing financial risk
Optimizing capital allocation

KPIs include:

Net interest margin
Cost-income ratio
Loan to deposit ratio

The cost of capital weighs heavily in how value creation is measured, planned and executed. Since most companies are funded through a mixture of debt and equity, a weighted average cost of capital (WACC) is helpful in calculating an appropriate baseline from which value creation can be measured.

Cost of capital is influenced by several key factors:

Cost of debt: Driven by interest rates, credit rating, tax rates, loan terms and debt level
Overall factors: Includes factors like capital structure, inflation/economic conditions, industry risk, regulatory environment and country risk
Cost of equity: Equity drivers include risk-free rate, market risk premium, beta coefficient, dividend and share buy-back policy and growth expectations.

Cost of capital changes influence whether an investment is value accretive, either via the discount rate in a Discounted Cash Flow (DCF) valuation of a company or a project, or via a change in valuation multiple. For growth and maturity stage companies, the spread between its return on invested capital and the related cost of capital measures whether it is value accretive / generating ‘economic profit’. At the same time, value creation can be supported by lowering the WACC for a given business.

Our value-driven approach and delivery

At the core of our strategy is a commitment to delivering long-term value through continuous performance enhancement. We achieve this by employing a well-structured and professional approach that mitigates risks and optimizes processes. KPMG firms utilize a comprehensive value creation methodology to ensure successful outcomes. Coordination across various facets of the process is crucial to this endeavor.

A trusted advisor and known leader

We leverage our extensive experience and offer strategic advice to emphasize the most critical elements. Our focus is on enhancing margins and maximizing value, which leads to quantifiable results.
An integrated team working at deal speed

Our integrated, cross-functional approach helps drive positive change, powered by our tools and capabilities to plan, execute, and sustain the outcomes sought by you and your stakeholders. And, by working closely across our global network, KPMG firms can help implement cross-border value creation and provide practical, hands-on delivery.
A holistic approach to performance improvement

Our Transformation and Performance Improvement solutions are designed to significantly and sustainably advance a business's financial and growth path, focusing equally on growth opportunities and cost efficiency. From strategic planning to implementation, we assist you in achieving tangible improvements in revenue, operating margins, cost structures, and working capital.
Next-level, global insights using advanced analytics and data science

KPMG firms have made significant investments in technology, data, and analytics on a global scale to serve clients in all sectors. Our next-generation data analytics capabilities enable us to identify the critical focus areas, allowing us to collaborate with you on implementing effective strategies to enhance your organization 360-degree performance.
Execution power

KPMG unites sophisticated data, actionable insights, and strong execution skills to help you identify and realize value-enhancing opportunities. Leveraging a wealth of proprietary information and sector-specific expertise, we pinpoint areas for improvement and then apply our hands-on experience to deliver on those opportunities.

Our insights

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KPMG has market-leading alliances with many of the world's leading software and services vendors.

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