Growth as key driver for value creation

As a follow up from the previous post, about  Value: The Four Cornerstones of Corporate Finance, Tim Koller, Richard Dobbs and Bill Huyett from McKinsey & Company, we talk about growth that is the second main driver for value creation (the other is return on capital).

Growth does not lead to value creation unless returns on capital are adequate. And different types of growth come with different return on capital. In the book there are 3 main categories of types of growth, Above Average, Average, Below Average.

Type of growth that gives  Above Average value creation (according to the book):

  • Create new markets through new products
  • Convince existing customers to buy more of a product
  • Attract new customers to the market

Type of growth that gives  Average value creation (according to the book):

  • Gain market share in fast-growing market
  • Make bolt-on acquisitions to accelerate product growth

Type of growth that gives Below value creation (according to the book):

  • Gain share from rivals through incremental innovation
  • Gain share from rivals through product promotion and pricing
  • Make large acquisitions

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