“Evaluation: measuring and managing the value of companies” has long been a final guide for business financing professionals. Eight editions in, the main author of the book, Tim Koller – a partner with the McKinsey & Company council giant – says that the greatest surprise is what has not changed. Koller talks about the global finance of one of the most sustainable subjects in the world.
Global finance: To what extent does geography play a role in assigning a business assessment?
Koller: It applies to most regions of the world. If you are a purely local business, in Europe or Asia, for example, then it is less a problem. But, if the United States underwent a serious recession, it would probably affect everyone. And then, of course, there are these companies which are directly affected – companies that export, import or compete with American companies. Many companies, even if they seem to be local, they compete with American companies, or they negotiate with American companies. Thus, the impact is made far beyond the United States.
Girlfriend: Are companies frustrated by American volatility and the search for opportunities in Europe and in the APAC region?
Koller: For most companies, it takes years to build or change strategies from a geographic perspective. Some of the companies I spoke to think of these things, but, at this stage, you are not content to enter a market in a few months. If you want to create a business in a new country, or if you want to change your supply chain, these things take time. It therefore depends. If your supply chain is highly specialized, it could take years to restructure. If your supply chain is simple or there are many other producers and you can go from one country to another, it’s a little easier.
Bringing things to the United States also takes a long time, no matter what industry it is. People think about it and make plans, but for the most part, the delay of any type of major structural change is quite long, and you don’t want to get involved until you probably know more about what’s going on.
Girlfriend: In this last edition of your book, have you addressed digital assets or how do companies build their own reservations?
Koller: We are not going, and I’m going to tell you why. For the most part, a large part of what people are talking about is not a currency. We call it a cryptocurrency, but it is not a currency. This is a speculative investment. And the nature of these speculative investments is different from an action or an obligation. There is no inherent assessment. We will not know what is the answer possibly. It is purely a function of the supply and demand of investors and the feeling for many of these cryptocurrencies. It’s like investing in vintage cars or fine arts. It’s nothing more than that. As far as I’m concerned, that’s why we don’t touch it, because you can’t do anything about it, and I wouldn’t understand why a business would put money. Because you really bet on the feeling of the market. You bet on other investors who want to enter this market and increase the price.
Girlfriend: What about stablecoins?
Koller: Stablecoins are cryptocurrencies linked to active active world, generally the US dollar or another fiduciary currency. The most famous are supported 1: 1 by real reserves. From the point of view of business assessment, they are not particularly interesting. If a cryptocurrency is simply set for the dollar but involves additional transaction costs, it does not offer many advantages on the use of dollars directly.
There has been a question for decades of something that has replaced the US dollar as a global reserve currency – whether the euro, the yuan or others – but these alternatives are faced with their own challenges. For a currency to be viable for transactions, especially daily purchases, it must have stable value. This is why something supported by the dollar or another relatively stable fiduciary currency is necessary.
However, Stablecoins do not really take into account the strategic decision-making of most companies or investors, unless they are directly involved in the currency or cryptocurrency markets. And it is a niche area on which I hesitate to speculate.
GF: Are there some basic errors that occur in a company that affects the evaluation or leads to their failure?
Koller: It is rarely that a company is fundamentally unrelated. The real problem is often the gap between the way companies appreciate and the way the market appreciates them. Many CEOs and financial directors believe that their companies are undervalued, but when we analyze hundreds of businesses each year, using updated cash flow models and peer comparisons – we generally note that the assessments are 10% of fair value. This margin is small and can fluctuate day by day.
Companies, on the other hand, often have incompatible financial projections with their market value, because the market does not give them things they hope to achieve, unless they have solid experience. For example, if an industry increases to 4%per year and a company is planning growth of 6%, the market can only the price of 4%. If the company is just hitting this, it is not a failure – investors did not expect it more. It is not a disaster from the point of view of the evaluation, because investors did not expect anyway.
The biggest problem is the disconnection we have seen in the Dotcom bubble. There is sometimes a disconnection, you could say, with some of the great mega [magnificent seven] stocks. One of the characteristics I seek, in terms of potential overvaluation, is who is investors in a company. And, in particular, what part of retail investors? And if you see a very high part of retail investors inside in an action, it is often a sign of overvaluation. Retail investors do not bring together the figures. They generally buy emotion and media threshing. It may be a big business, but it does not mean that you should pay 100 times the profits.
Girlfriend: Could this also complicate mergers and acquisition strategies?
Koller: Yes, although it creates an opportunity. Very few companies have the courage to take advantage of it. If my actions are overvalued, this is the time when you can use these actions to buy something, and it’s great. We have seen a few, but not so often.
Girlfriend: During the eight editions on evaluation, what is the most surprising change you have seen in the way companies are struggling with value?
Koller: The most surprising thing is not to know how much companies have changed, but how much they have. And it is not only because we wrote a book, but other academics have done research. Many companies remain too short -term oriented. Large companies are still trying to shake up costs towards success, which only works for a limited time. And while innovation continues, it often comes from small businesses rather than major players.
A positive change was the constant decline in conglomerates. More and more companies are divided into simpler and more targeted entities. This trend, certainly obvious in the United States and to a certain extent in Europe also, has improved the effectiveness of management and is favored by investors who appreciate concentration and clarity. It is probably the most significant change – the breakdown of complex companies in smaller.
Girlfriend: Are the recent titles of Google and Meta under control and possibly broken down illustrate this trend?
Koller: I cannot speak specifically about Google or Meta, because their commercial units are more interconnected than, say, a company manufacturing both valves and toothpaste – where there is clearly no synergy. What matters is not size but complexity, especially when companies do not share customers, technologies, suppliers or distribution channels. It is then that it is logical to consider breaking them.
More broadly, although the trend towards targeted companies has been positive, many companies remain too short -term oriented. They often blame the stock market, but it is not entirely fair. Our research shows that around 75% of investors – whether retail, index funds or institutions – are long -term holders. The problem is that companies tend to pay too much attention to the strongest voices, which are often short -term traders. There is still a lot of room for companies to adopt a longer -term approach, and it is a work that continues.
Girlfriend: In From past editions or in this new edition on assessments, was there a kind of surprising trend or development that you noticed?
Koller: A major trend that we have seen is the globalization of stock markets in the past 35 years. Today, the basis of shareholders of large companies in Europe, Japan and Taiwan often resembles their American peers. As an individual investor, you can easily buy hundreds of international funds or even individual foreign shares – and the same goes for investors abroad by buying American shares. Thus, from the point of view of the capital markets, things were really globalized.
However, business behavior still varies according to the region. On average, European companies continue to achieve capital returns that their American counterparts, although the gap has been reduced and that some of the most efficient companies in various industries are European. In Asia, the accent is always notable on size and prestige on value creation. I am surprised that the objective persists. Although it evolves slowly, many companies always prioritize growth and scale rather than returns, which often leads to lower assessments compared to American companies – unless they are high growth global competitors.
Girlfriend:: What will modern finance look like in the future?
Koller: I hope AI will help us appreciate companies more effectively. Currently, it is good in tasks like summary and research quickly, and over time, it can become more capable. But while technology – and AI in particular – increases a large part of the stock market, it still represents a relatively low part of the wider economy. Most people still need housing, food, clothing, travel – these companies do not disappear.
AI will be used in many industries to improve customer experience, reduce costs or improve products, but that will not fundamentally change things. The evaluations will be disproportionate to these companies. But will the real question: will companies use AI to actually increase the profits, or will these gains be transmitted to consumers, as with many past innovations? For investors and managers, the key is to understand if AI is a real source of competitive advantage. This distinction will vary according to industry, but it is at the heart of how we think of value in the future.