Investors will choose to invest in a business based on what they expect the business to return to them. In evaluating an investment opportunity, investors will compare the expected returns with those from the many other choices that they have for the investment of their money. Once the investors have placed their money in the business, the onus is on the management to ensure that the expected returns materialize.
The overall aim of the company’s management, including the company’s engineers and scientists, is therefore to maximize the value of the investmentmade by investor for the benefit of investors and other stakeholders in the company.
There are three main drivers for enhancing the value of a company. These are (i) through the superior use of finance; (ii) through superior organization; and (iii) through superior strategy. The first driver has three elements: the control of costs, the use of capital, and the raising of capital. The second driver refers to the management of processes, people, performance and talent. The third driver refers to the superior anticipation of the future, of trends and events that may affect the business, and the superior deals that place the company in a better position than competitors.
These factors, and the company’s performance in managing them, influence the value of the company. Engineers and other technical professionals contribute significantly to all of the main drivers of value. The focus of most engineers and scientists is on enhancing value through the optimum use of resources, the control of costs and the management of processes. Some may find themselves working in research and development on strategic projects that anticipate, or take a leading role in shaping, future trends.
Others have personal leadership qualities, and rise to become part of the leadership of the organisation. The value of a company is most easily measured by the generation of cash by the company. Value is measured by cash flows. More particularly, value depends on the amounts of cash flow, the anticipated timing of future cash flow, and the risk of these anticipated cash flows not materializing. If the company is listed on a public exchange, the value of the company is reflected directly in the share price.
The same factors that affect value for an investor in a public company, that is, the amount, timing and risk of the expected cash flows, affect the value for investors in a private company.
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