An example of recycling of well-established and shared concepts has given to us by a noble Milanese university about the creation value theory imported from United States, but not worthy of the attention that we wanted to give her. More drastically: it doesn’t matter, because we have everything since long time.
One of two things:
- It is a matter to present again the usual valuation methods already known for almost a century, resulting directly or indirectly in the question: “how much will the investment in the business yield in the future?” That, discounted back by more or less realistic rates, gives us a measure of the prize, that can be paid today to manage the business. It is useless to hide behind fine words: it is a bet. This does not mean denying the importance of all efforts to assign a realistic value, even if discretionary, to the business context, generally before a purchase intent. It is an essential stance for the investor- entrepreneur, who, after arduous dialectic with the aspiring seller, concretizes his intention on a price more or less near to that abstract determined by the appraiser. Only in a case the appraised value becomes real: when buyer and seller draw up a “contractual appraisal”, that is their promise to take the value determined by the appraiser;
- or it is not a method, but a non-mathematical concept, such as whether a company will be worth more tomorrow than today, it means that it is in a condition of profitability. If so, are useless the calls to the methodologies in use, that have the only aim to determinate a value.
Instead, they intend to give to the creation value theory a valence for both aspects. But to declare that a company increases its value when it earns, it is not only banal but also deceptive, because the value is done by the market when it is widespread or by the strength of the contractors. We can check it in these last period when financial markets seems to have lost their direction and they confirm the deterministic chaos theory: “one butterfly beats one’ s wings on Caribbean sea and the day after a perilous storm rages on Boston”. Just check the stock prices, especially bank stocks, some of which are quoted at less than 50% of shareholders’ equity? There is a rationality in this fact? If we trust in the creation value theory, it denotes that, in few weeks, without changes in that is already known, there has been a destruction of value of more half of the net capital value and, note, in presence of balance closed in profit . How is this possible? Or rather: how is it? We cannot find explanations in the creation value theory.
In brief: the confusion can be explained by a blatant confusion between exogenous and endogenous phenomena. The firsts are related to acts and facts internal into the business. The seconds are caused by general external facts, on which the single company, though great, has not power.
And then: it is useless to fiddle with “creation or destruction of value”, we have to content with consolidated methods to give theoretical answers; after, in practice, we pass the buck to that one who has the muscles to face for a “arm-wrestling”.
But we would strike a blow in favor of the creation value theory.
It is undeniable that every knowledge intended to better the sensibility and the ability of analysis about business aspects, susceptible to increase the business value, it is welcome. The economic culture is never enough and it doesn’t stopped in a business world more and more nervously dynamic. Actually, about the organization, the management and the accounting analysis, we know more than the previous generations and the merit (or the necessity) must be recognized also to the university. If the creation value theory engage this augmentative process of the knowledge, it is duly accepted. However the problem bounces from the theory to the praxis and the question is: how the enterprise market (stock, purchase/sale of companies) is able to consider the creation value theory. If the answer is negative, as it is probable, then the creation value theory is destined to remain inside the company, like a criterion of critic analysis for unsuccessful targets or future plans.
(Translation by Giulia Bonazza)