The best way to value any business is to look at its pricing strategy. And the nice thing about pricing is that it is very easy to understand. It allows you to see how well your company is managing its processes. But, be warned: in our experience aggregates companies often leave at least 5% revenue on the table … and that is a big number say our expert consultants in the second feature of our Six Deadly Sins Management Masterclass series.
Our industry experts explain how the long-term success of any business is based on its financial performance, especially in terms of wealth creation on behalf of
the shareholders. As we outlined in our previous feature, Economic Value Added (EVA) is a modern corporate financial metric being used by many leading companies to assess just this … their financial performance.
EVA gives a true sense of the business’s profitability because it includes the cost of capital. Stern and Stewart, who conceptualised EVA, claim that EVA has got better predictive powers than normal accounting procedures if you really want to measure and analyse the financial performance of a company. And this is where accurate pricing comes in, because pricing has a huge impact on total revenue and is a key component in a company’s profitability. But how much time, effort and structured
thought are you placing on this obvious driver for a healthy P&L and, eventually, a healthy balance sheet?
How many times have you heard company executives complain about how short-term profitability pressures are forcing them to sacrifice long-term wealth creation?
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