Abstract: Strategy, Value, and Risk-The Real Options Approach, by Jamie Rogers, 2002, New York: Palgrave Macmillan In the insurance industry, there are many examples of options to expand and options to abandon. Insurance companies cannot afford to ignore such options. Any serious attempt to valuation of insurance companies now entails a valuation of the embedded and expansion options. In early 2002, the Economist magazine issued a scathing report on the insurance giant AIG. It claimed that by looking at "best in each line of business" and adding them up, the value of AIG should have been less than half of its market value. It claimed that as a result, AIG was severely overvalued. In a strong criticism of the Economist report, Bernstein (http://www.economist.com/finance/aig_bernstein.pdf) showed that the analysis by the consultant hired by the Economist was deeply flawed. The consultants did not take into account the expansion options of the giant AIG. How much would such options be worth? For general insurance and life insurance businesses of the AIG, these options have values approximately equal to their embedded and franchise values. In case of financial products, the real option value was even bigger. In sum, real option value embedded in insurance companies is not little add on. It is one of the main events (see, for a practical application of a real-life takeover valuation using real options, http://allman.rhon.itam.mx/~tapen/ArredondoSinha.PDF). Thus, the use of real options can be quite useful for insurance industry. The professed purpose of this little book is "provide a background to the concept and method of real options." The author, Jamie Rogers is a consultant with PricewaterhouseCoopers, New York with their financial risk management practice. The book is divided into thirteen chapters in four parts. A brief introduction sets the stage. It talks about Schumpeter's thesis of creative destruction. With a brief discussion of value and risk, it launches the case for real options as the value for the flexibility of a project. Part I has four chapters discussing the evolution of strategy, value, and risk. Chapter 1 (of three pages) begins with an overall view about strategy. Chapter 2 gives a four-page summary of net present value. Chapter 3 is an equally brief two-page summary of investment risk. Chapter 4 discusses three strategic case studies: one of information technology, one for energy, and one for the introduction of a new (and expensive) drug by a pharmaceutical company using discounted cash flow analysis. Part II contains three chapters with the general theme of developments in strategy, value, and risk. Chapter 5 discusses strategy in a generic fashion. …

Abstract: EXECUTIVE SUMMARY * THE VALUE MEASUREMENT AND REPORTING Collaborative (VMRC) is a global effort intended to help boards of directors, senior management, investors and other stakeholders make better strategic decisions using value measurement and reporting. Its members believe the value of a company lies not only in its present operational value but also in its potential to create value in the future. * BUSINESSES REPORT VERY LITTLE EXTERNALLY about their human, relational or organizational capital. As a result it's difficult for investors to know how well a company measures or manages factors that have the potential to create future value. The VMRC did research on how human capital, customers and clients and innovation affect future value creation in three industries--natural resources, pharmaceuticals and telecommunications. EXECUTIVE SUMMARY * A LARGE MAJORITY OF NATURAL RESOURCES companies did not disclose any measures that would allow observers to better understand the value of their customer base. Among pharmaceutical companies, only 19% commented on human capital and even then it was to report only the number of employees. * THE VMRC RESEARCH CONFIRMED THERE IS LITTLE publicly available information on the factors that drive a business's future value. No companies in the three sectors commented about the number of product categories purchased per customer or the expected life of a customer. Only pharmaceuticals companies disclosed products they had under development. * WHILE MORE WORK IS NEEDED BEFORE COMPANIES disclose information about their potential for future growth, some have begun to reveal these critical data. Two companies in the research sample disclosed information about their virtual R&D team and two others provided details about the number of new ideas they had generated. What creates value in a company? The Value Measurement and Reporting Collaborative (VMRC) believes value is defined not only in monetary units but also in objects, ideas, events or processes. The VMRC, in which the AICPA participates, is a global effort of the accounting profession to help boards of directors, senior management, investors and other stakeholders make better strategic decisions using value measurement and reporting. Its members say a company's worth exists not only in its present operational value as accounted for historically in its financial statements, but also in its potential to create future value. Managing the factors that influence corporate performance is one way management adds value to the bottom line. Every investment analyst tries to look beyond the financial data for information about a company's potential. Accordingly, CPAs in senior management, board members, analysts and investors should be interested in a framework of principles and criteria to measure and report value creation and maintenance. Research undertaken on the VMRC's behalf by Roland J. Burgman, Reporting on Intangibles and Intellectual Capital Assets, shows the market value of equity and net debt is larger than the present value of current operations for companies in the Russell 3000 index (excluding real estate companies). This difference between the two--which the research refers to as a company's intellectual capital of a human, relational or organizational nature--is called future growth value. THE POTENTIAL FOR FUTURE VALUE Depending on the definition, intellectual capital can be the term for all value drivers or value drivers can encompass intellectual capital. Regardless of how CPAs apply the term, the issue is that while information about factors that have the potential to create value may be available internally, businesses report very little of it externally. Companies sometimes disclose future value information quantitatively or qualitatively in a management discussion and analysis (MD&A) statement, in the president's message or on their corporate Web sites. …

Abstract: The era is changing and the category of value origin is extended simultaneously As viewed from corporation, this paper discusses at length the thought and the mechanism of value creation of labor theory of value, capital theory of value and customer theory of value Afterward, we conclude that though the three theories have different status in different corporations and different times, they are an integrated system It is a necessary current for corporations to divert from labor and capital creating value to customer creating value

Abstract: We argue that a multi-dimensional value framework will help Value Based Management (VBM) to return on the right track. Unfortunately, today's VBM is predominantly restricted to the logic of shareholder satisfaction. As a consequence, corporate decision-making is mainly influenced by the future prospects of adding value to invested capital. But we will show that there exist an immense variety of value sources that also need to be included to fully assess corporate value added. Only by broadening VBM's present perspective on value, it can again be seen as a helpful guideline to secure corporate sustainability.

Abstract: As of May 2003, $7.6 trillion (or 58%) of the aggregate value of the U.S. stock market represented “future value”–that portion of value that does not depend on current operating performance but rather on anticipated growth. This concept of future growth value is especially important in newer industry sectors and among companies whose value is based heavily on intangible assets, such as brand and proprietary knowledge. But traditional accounting remains focused on tangible assets. And because most executives rely on accounting- based financial data to run their businesses, they end up focusing on current operating results when they should be investing in strategies that optimize future growth. In short, many of the assets that are most responsible for creating value in today's economy are not managed as well as they could be. As part of its high-performance business initiative, Accenture has developed a comprehensive research database and a set of tools for examining the components and drivers of future value, along with a methodology for applying this research on a companyspecific basis. Accenture's futurevalue analytics can determine the portion of a company's market value that is attributable to future growth, and can help identify the drivers of that future growth value. The development of a viable operational framework will enable executives to translate corporate intangibles into manageable market value.