[Digest] статьи - экономика
Balancing ROIC and growth to build value
Companies find growth enticing, but a strong return on invested capital
is more sustainable.
Bing Cao, Bin Jiang, and Timothy Koller
Web exclusive, March 2006
Growth might be the lifeblood of a business, but it isn't always the
best or most sustainable way to create value for shareholders. Return on
invested capital (ROIC) is often just as important-and occasionally even
more so-as a measure of value creation and can be easier to sustain at a
high level.
When a company's ROIC is already high, growth typically generates
additional value. But if a company's ROIC is low, executives can create
more value by boosting ROIC than by pursuing growth (Exhibit 1). A close
look at companies with high price-to-earnings multiples shows that many
have extraordinary returns on capital but limited growth. This scrutiny
suggests that, contrary to conventional wisdom, investors recognize (and
will pay more for) the anticipated returns of companies with a strong
ROIC, despite their limited growth prospects. This observation doesn't
mean that growth is undesirable; unless companies keep up with their
industries, they will likely destroy value. But they shouldn't pursue
growth heroically at the expense of improvements in ROIC.
Chart: Value, compared
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After identifying the largest publicly listed companies in the United
States (by revenues) in 1965, 1975, 1985, and 1995, we examined their
long-term patterns of growth and ROIC.
<http://www.mckinseyquarterly.com/article_page.aspx?ar=1761&L2=21&L3=34#
foot1#foot1> 1 The median ROIC for the 1965 group remained stable, at
about 9 percent, over the next 40 years. We observed the same pattern
for the groups from 1975, 1985, and 1995. In other words, ROIC tends to
remain stable over time (Exhibit 2).
Chart: A more sustainable measure
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Growth, by contrast, is fleeting. The median inflation-adjusted growth
in revenues for the top 500 companies in 1965 started out at 7 percent
and steadily declined to 2 percent over the next 10 years, hitting a
cyclical low of 0 percent by year 17. For the next 20 years, growth
hovered at around 2 percent-a figure below the level of US GDP growth.
<http://www.mckinseyquarterly.com/article_page.aspx?ar=1761&L2=21&L3=34#
foot2#foot2> 2 We observed a similar general pattern of decay in median
real growth for the top 500 companies in 1975, 1985, and 1995.
Moreover, pattern analysis at the industry
<http://www.mckinseyquarterly.com/article_page.aspx?ar=1761&L2=21&L3=34#
foot3#foot3> 3 level further shows the importance of managing ROIC. A
comparison of ROIC
<http://www.mckinseyquarterly.com/article_page.aspx?ar=1761&L2=21&L3=34#
foot4#foot4> 4 for the top 500 companies of 1965 shows that it remained
steady in most sectors and even increased in some-particularly those
with strong brands or patent-protected products (household and personal
goods, for example) and pharmaceuticals and biotechnology (Exhibit 3,
part 1). Growth, by contrast, almost always declined, except in
pharmaceuticals (Exhibit 3, part 2).
Chart: Industry variations in ROIC
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Chart: Industry variations in growth
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A close look at individual companies finds similar patterns; companies
with high levels of ROIC tend to hold on to that advantage, whereas
high-growth companies rarely do. Exhibit 4 looks at the probability that
a company will migrate from one level of ROIC to another over the course
of a decade. A company that generated an ROIC of less than 5 percent in
1994, for instance, had a 43 percent chance of earning less than 5
percent in 2003. As the exhibit shows, low and high performers alike
demonstrate consistency throughout the 40-year period. Companies with an
ROIC of 5 to 10 percent had a 40 percent probability of remaining in the
same group ten years later; companies with an ROIC of more than 20
percent had a 50 percent probability.
Chart: Individual companies can sustain a high ROIC...
:::::::::::::::
The McKinsey Global Survey of Business Executives : Confidence Index,
April 2006
Executives' confidence in economic conditions has risen for the second
consecutive quarter.
Web exclusive, April 2006
For the second quarter in a row, executives' overall confidence in
economic conditions has risen (Exhibit 1), and hiring plans are robust,
especially at the smallest companies, according to the latest McKinsey
Quarterly global survey.
<http://www.mckinseyquarterly.com/article_page.aspx?ar=1764&L2=7&L3=10#f
oot1#foot1> 1 Even so, the overall economic outlook six months out is a
bit less positive.
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As a whole, this survey reflects a fairly positive steady state. More
executives plan to change the size of the workforce over the next six
months than had plans to change it six months ago, with a bigger bump in
hiring: 44 percent now (compared with 35 percent then) say they plan to
increase their workforce, while 20 percent (compared with 18 percent)
say they plan to decrease it.
Notably, the smallest companies in the survey are the most enthusiastic
about hiring: 53 percent of companies with annual revenue below $10
million plan to hire, versus 31 percent of companies with $30 billion or
more in revenues. These small companies have become increasingly likely
to hire over the past six months. The differences are even more striking
among the executives who plan to decrease the size of their workforce:
32 percent of those at the largest companies plan to do so, as opposed
to only 5 percent of those at the smallest. What's more, C-level
executives (CEOs, CFOs, and so forth) are more optimistic than other
executives are about increasing the size of the workforce (Exhibit 2).
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Executives in Europe are the most likely to be planning a decrease: a
full quarter of them say that they are. The ongoing political battles in
Europe over workers' rights and social taxation likely stem from the
same underlying economic shifts that are causing many European
executives to reduce the size of the workforce.
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Confidence among executives in China bounced back in the past quarter.
After a notable drop in December 2005, executives there are once again
as positive as the global average about the current condition of their
industries, and their confidence in the country's economy has also
increased dramatically (Exhibit 3). China is the only country where
executives believe conditions will be better in six months, either
globally or in their own country and industries. At the industry level,
most executives around the world expect conditions to remain at the
same, fairly positive level, but broader economic conditions are
generally expected to falter slightly. Executives in developed countries
in Asia and the Pacific expect the biggest drop.
Notes
<http://www.mckinseyquarterly.com/article_page.aspx?ar=1764&L2=7&L3=10#f
oot1up#foot1up> 1The McKinsey Quarterly conducted the survey in March
2006 and received 3,470 responses from a worldwide representative sample
of business executives, 44 percent of whom are CEOs or other C-level
executives.
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