When your company establishes a credible long-term strategy — including a way to play in the market and the capabilities to deliver — it sets up a high level of certainty. In valuation terms, your market value (your shareholders’ expectations) will more closely reflect your intrinsic value (the profits you consistently create). This is a tremendous source of strength, but it also triggers the paradox of market equilibrium.
You cannot avoid this paradox; it is the nature of the market. But there is an alternative, financially based management objective that can help you create a more consistently viable and nimble enterprise, and thus a more sustainable value proposition for investors. It is known as intrinsic value, and it is the key to strategic surprise. It can help raise your potential for growth and innovation by providing a more disciplined and rigorous approach to valuing your strategic alternatives.
Authors: Aaron Gilcreast, Larry Jones
Source: strategy+business
Subjects: Finance, Management, Strategy
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