Discover one of the surest means to create personal wealth by building a profitable business
Every now and then, a business book comes along that offers original insights and a fresh perspective. In The Value Equation: A Business Guide to Creating Wealth for Entrepreneurs and Investors, veteran executive, entrepreneur, and investor Chris Volk delivers an engaging, straightforward explanation about how businesses work and provide wealth for entrepreneurs and investors. The author’s signature approach is centered on his award-winning wealth creation formula in a book designed to simplify complex subjects with math no more complicated than what you learned in middle school.
Readers will become acquainted with the characteristics of successful business models, together with insights into how leaders can improve their own models in ways that generate personal and collective wealth. The author’s framework presented in The Value Equation is the foundation upon which most of the largest personal fortunes were built.
Chris Volk also provides supplemental materials including interactive Excel spreadsheets, illustrations, and sample corporate financial models on a companion website. There is even a link to an award-winning video series created by Volk that served as his inspiration for the book. Full of illustrative case studies that highlight crucial business and finance concepts The Value Equation includes:
- Explorations of the true value of using OPM (Other People’s Money) and capital stack variations to build and grow your company.
- Advice on business assembly, growth, mergers, acquisitions, and corporate reengineering, including discussions of valuation multiples, common risks, and capital options.
- Guidance on how to valuate business models, delivered with help from a variety of stories and case studies. Uniquely, the author also draws on his own background, including the introduction of three successful companies to the public markets, two of which he was instrumental in founding.
The Value Equation is an indispensable addition to the libraries of anyone interested in growing wealth and capital through business, whether as a business leader, entrepreneur or investor.
Table of Contents
Preface xi
Introduction 1
Chapter 1: Free Enterprise and Wealth Creation 11
In the Beginning Is the Idea 12
Unicorn Likelihood 13
Odds of Success 14
The Six Variables 16
Chapter 2: Daymond John and the First Variable 17
Accountants vs. Entrepreneurs 21
Variable #1: Business Investment 23
Chapter 3: The Capital Stack and Two More Variables 25
The Right Side 25
Other People’s Money (OPM) 26
Variables #2 and #3: Amount and Cost of OPM 29
Cost of Capital vs. Cost of Equity 30
Capital Stack Assembly 31
Equity Sourcing 33
Chapter 4: Three More Variables and Voilà! 35
Variable #4: Sales 36
Variable #5: Operating Profit Margin 36
Variable #6: Annual Maintenance Capital Expense 37
Putting the Six Variables Together 39
Gordon Growth Model 42
Equity Valuation 43
The Miracle of Compounding 44
Dissecting Investment Returns 47
Chapter 5: The Value Equation 51
EVA and EMVA 52
Making the V- Formula Even Simpler 54
Solving for Other V- Formula Variables 56
V- Formula Data Tables 58
Chapter 6: Business Model Evaluation 61
STORE Capital 62
The FAANGs 66
Chapter 7: Pulling the Corporate Efficiency Levers 75
Operating Efficiency (O) 76
Asset Efficiency (A) 80
Capital Efficiency (C) 85
Six- Shot Economics 88
Chapter 8: Choosing from Your OPM Options 89
Designing Your Own OPM 90
Leasing 91
Creating a Model to Evaluate OPM Options 93
Real Estate as an Investment 98
Chapter 9: Opportunity Cost 101
Some Opportunity Cost Illustrations 102
Creating a Model to Evaluate Real Estate Lease Opportunity Costs 104
Chapter 10: The Final Form of OPM 115
OPM Equity 116
Sustainable Growth Rate 118
Taking on OPM Equity 120
Contents ix
Deciding How Much OPM Equity to Use 121
Creating a Five- Year Model 122
Sweetening the Deal 125
OPM Equity Flavors 127
OPM Equity Considerations 129
Chapter 11: A Look at Public Companies 131
Determining Public Stock Equity Returns 137
Walmart 143
Chapter 12: Animal Spirits 149
Elon Musk and Tesla 152
Stock Exchange Differences 154
Restaurant Case Studies 155
Lone Star Steakhouse & Saloon 155
Boston Chicken 158
Value Investing 159
Chapter 13: Mergers and Acquisitions 165
OPM Capital Options 167
Solving for Equity and Company Valuation 170
EBITDA Valuation Multiples 172
M&A Risks and Rewards 173
M&A Nightmares 176
GE and M&A- Driven Growth 179
Focusing on What Matters 184
Chapter 14: The Essential Ingredient 187
The Growing Restaurant Illustration 187
Designed Structural Change 189
Planned vs. Imposed Structural Change 197
Blockbuster Video 200
Designed Revolutionary Change 203
Reengineering the Corporation 205
Chapter 15: The Art of the Possible 209
The Circles of Business Life 212
Evolving Capital Choices 216
Value vs. Momentum Investing 219
Defining a Financial Win 221
Some Final Thoughts 225
Glossary of Terms 227
The Value Equation Framework 231
Notes 237
Acknowledgments 243
About the Author 245
Index 247
