At Axholmen, we emphasize the importance of market capitalization as a key element in strategic corporate planning. Our holistic approach integrates growth, investment, profit, and balance sheet considerations, aiming to foster sustainable growth and build investor confidence. Focused on market cap-enhancing strategies, we guide our clients in prioritizing strategic initiatives that promise the most significant impact.
In today’s competitive landscape, maximizing market capitalization isn’t just a goal—it’s the cornerstone upon which sustainable growth, investor confidence, and industry leadership are built. Market capitalization is a relevant metric to optimize in a company’s strategy as it combines short-term performance and cash flow with long-term potential and beliefs. Shareholders are in general attracted by maximizing the return of their invested capital, either through dividends or an increased market capitalization. Thus, a market cap-focused strategy will take into consideration growth, investments, bottom-line profit, and the balance sheet in a balanced way.
When developing a strategy, quantifying benefits with financial metrics is also a way to ensure that the best strategic initiatives are prioritized, i.e. those generating the most market cap improvements. Many corporate strategies are sub-optimized as the effort of quantifying the long-term benefits of strategic initiatives has not been scrutinized sufficiently.
Development and prioritization of strategic initiatives
The general strategy development process for a 3–5-year strategy period starts with collecting and concluding input, from which strategic initiative hypotheses can be developed. Hypotheses are then iterated and adjusted until the most optimal strategic initiatives are defined together with concrete realization plans. During this process, the capability of assessing and verifying the realistic market cap improvement for a specific strategic initiative is key to eventually decide on the right strategy.
Market capitalization-focused strategies
Axholmen’s point of view is that a concrete strategy both states what to do and what to achieve financially. The below example illustrates how strategic initiatives contribute to improving a company’s market cap.
Illustrative example of strategic initiative output
The illustration above is a summary of the outcome of the strategy. It shows how a company plans to increase its market cap over the strategy period through a limited number of strategic initiatives. Other initiatives that have been excluded from the strategy, have not qualified as relevant strategic initiatives as a result of having insufficient effect on the market cap.
How to quantify the market cap impact
To be able to estimate the market cap impact of strategic initiatives, valuation multiples can be used based on the type of strategic initiative, e.g. EBIT multiple and P/S multiple. The table below shows an illustrative example of relevant multiples.
Table: Valuation multiples for strategic initiatives
Each strategic initiative will have an impact on one or more valuation parameters. In addition to the above, investments required to realize the strategic initiatives need to be included as negative amounts, generally using a multiple of 1.
To identify realistic valuation multiples, aspects such as expected market growth rate, current invested capital, current profit levels, risks, etc. need to be considered, e.g. slow-growing companies generally have lower EBIT multiples compared to fast-growing companies. However, there is publicly available data to judge what EBIT multiple to use to avoid guesswork. Researching industry peers’ valuations, growth rates, profit levels, etc. and companies in similar industries can be used as reference points.
To summarize, Axholmen’s key takeaways on market capitalization-focused strategies:
A market cap-focused strategy should, in a balanced way, consider growth, investments, bottom-line profit, and balance sheet, but also balance short-term and long-term priorities
It should include what to do and what to achieve financially for each strategic initiative
By utilizing valuation multiples to estimate financial market cap impact, initiative prioritization can be made based on impact
Axholmen has 15 years with extensive strategy development experience from projects delivered worldwide in multiple industries
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20 years experience from creating P&L results through spend reduction, efficiency improvements, operating model revisions, re-design & dimensioning of organizations, working capital efficiency improvements and pricing optimization in large- and medium-sized companies in a diverse blend of industries, both in consulting and line responsible roles.
Axholmen was founded in 2007 with the idea of providing a modern Swedish alternative to the global management consultancy firms. We are focused on profitability improvements that are delivered in close cooperation with our clients and with pragmatism as a core value
What we do
We have succeeded in building a large client base among leading Swedish, Scandinavian and Global companies as well as attracting and retaining top talent. We have accomplished this by delivering concrete results in strategic projects combined with a way of working in smaller, more senior teams, together with our client. Our clients describe us as both strategic and concrete by stating our ability to help them in finding the right solution to their most complex challenges and ensure that the solution is implemented and results are achieved
Who we are
Axholmen has a strong team of experienced management consultants that all share the idea that modern consulting services are justified by the actual results and financial value created. We are willing to share the commercial risk and tie a large portion of our fees to that the agreed results are achieved
For business-to-business companies with the ambition to grow, a growth strategy is usually developed based on a point-of-departure analysis combined with customer and market insights. However, to make the plan successful, actions need to be concretely defined and planned. Without converting a theoretical strategy into doable actions, limited positive effects can be expected.
The allure and potential of markets being in their infancy are undeniable. However, often representing multiple challenges, particularly when it comes to estimating total addressable market size (TAM) and near-term growth potential. The volatility, lack of historical data, and rapidly evolving nature of immature markets pose hurdles for understanding and capitalizing on potential.