Value Components

Valuation in Innovative Organizations

In highly innovative organizations, it is often thought that the entire value of the organization lies beyond the horizon, increasing uncertainty and skepticism about the valuation.

However, it is possible to view the value from a different perspective, as illustrated in the photo. The second column shows a breakdown of the same value into existing and new products, revealing that even in innovative businesses, the weight of new products is relatively small compared to existing ones. Consequently, the level of uncertainty is not as high as it might initially seem.

The third column further breaks down the value based on economic profitability. This shows that a significant portion of the business’s value is actually the balance sheet value of invested funds, with only about one-third of the value lying beyond the horizon line.

Source:
VALUATION – Measuring and Managing the Value of Companies
7th Edition
McKinsey & Company
Tim Koller, Marc Goedhart, David Wessels

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