This open access textbook offers a guide to corporate finance for modern companies that want to create long-term value. Drawing on recent literature on sustainable companies, it starts by analysing the Sustainable Development Goals as a strategy for the transition to a sustainable economy. Next, it translates the general concept of sustainability into core corporate finance methods, such as net present value, company valuation, cost of capital, capital structure and mergers and acquisitions.
Corporate Finance
for Long-Term Value
Futureproofing Companies & Valuation Ratios
Companies face serious transition risks and opportunities, which put their futureproofness to the test. Current valuation ratios are not well suited to value those transition risks and opportunities. We argue that the solution lies in expanding financial-based valuation ratios with externalities (external impacts), which are good proxies for transition risks and opportunities. Building on impact valuation methods, we calculate a company’s integrated value, which combines financial, social and environmental value. This paper turns integrated value into a valuation ratio: the futureproofing ratio.
We provide an empirical analysis by calculating futureproofing ratios for the companies on the Amsterdam Stock Exchange. This analysis shows that the futureproofing ratio varies significantly across companies and sectors, and provides valuable insight in the transition risk of a company’s business model. Company management and investors can use this ratio as a guide for investment decisions.
