Exhibit 28.2  Assessment of Business Units: Format with Sample Data
Primary factor criteria
Unit A
Unit B
Unit C
Unit D
Unit E
Unit F
Unit G
ROIC, 2019, %
14%
33%
17%
12%
13%
22%
10%
Growth, 2019–2023, %
–4%
–4%
2%
4%
14%
7%
2%
ROIC vs. peers, 2019
Above
Above
Comparable
Comparable
n/a
Below
Comparable
Growth vs. peers, 2014–2019
Above
Above
Comparable
Comparable
n/a
Comparable
Comparable
Source of advantages
• Manufacturing 
process
• Manufacturing 
process
• Cost leadership
• Technology 
leadership
• Market position
• Stakeholder 
relationships
• R&D/patents
• Product quality
• Brand
• None
Corporate value added
• Customer insight
• Process excellence
• Innovation 
leadership
• Customer insight
• Process excellence
• Innovation 
leadership
• Insights into 
industry's market
• Process excellence
• Supply chain 
expertise
• Process excellence
• Customer insight
• Process excellence
• Innovation 
leadership
• Capital to drive 
market consolidation
• None
Expansion scope
Low
Low
Low: Few other product 
applications
Low: Highly specialized 
skills/application
High: Wide range of 
product applications
Medium: Highly 
specialized skills/
application
Low: Few other product 
applications
Inflection points
• Currency shifts
• Changes in pricing and replacement cycle
• Competitor capacity
• New competitor 
entry
• Product adoption
• Regulatory changes
• User-friendly 
technology 
applications
• New competitor 
entry
• Channel 
consolidation
• R&D in emerging 
markets
• Anti-dumping suits
• Regional market 
recovery
Secondary factor criteria
Risk impact on company
High: Many factors 
outside control (e.g., 
currency)
High: Many factors
outside control
(e.g., currency)
Medium: Risk of new 
competitors and 
technologies
Low: Too small
High: Source of future 
growth; adoption 
unclear
Low: Too small
High: Market exposure
Cash flows, 2019 FCF, $ billion
0.90
0.60
–0.10
0.03
–0.20
0.20
0.20
Size, value estimate, $ billion
6.30
5.70
2.80
1.90
3.00
0.90
2.30
Management time vs. value 
potential
Adequate
Adequate
Adequate
Adequate
Adequate
Too high
Too high
 
542

Constructing the Portfolio  543
Scenario Analysis
Next, estimate the value of each business unit under four scenarios:
1. A baseline or momentum DCF value that grows in line with its under-
lying product markets without any changes in performance relative to 
peers (which could be supplemented with a multiples valuation relative 
to peers to see if there is a gap that needs to be closed)
2. A DCF value based on potential or planned operating improvements, 
for example, by increasing margins, accelerating core revenue growth, 
and improving capital efficiency
3. Value to alternative owners if the unit were to be divested
4. Value with additional growth opportunities through innovation or 
acquisitions
We can demonstrate how a real company (we’ll call it Hexa Corporation) 
applied this approach. Hexa is a $10.65 billion company with six operating 
businesses. Consumerco, which manufactures and markets branded consumer 
packaged goods, was earning a high return on invested capital (ROIC), but its 
growth had barely kept up with inflation. Nevertheless, because of its size and 
high ROIC, it accounted for about 72 percent of Hexa’s total enterprise value. 
Foodco operates a contract food service business. Its earnings had been grow-
ing, but ROIC was low because of high capital-investment requirements in 
facilities. Woodco, a midsize furniture manufacturer, was formed through the 
acquisition of eight smaller companies, but their operations were still being 
consolidated. Woodco had suffered steadily declining returns. The other three 
businesses in the portfolio are a small newspaper (Newsco), a small prop-
erty development company (Propco), and a small consumer finance company 
(Finco).
As shown in Exhibit 28.3, the discounted-cash-flow (DCF) value of 
Hexa based on a momentum cash flow scenario approximately matched 
its market value. A cash flow analysis showed that, while Hexa had been 
generating substantial discretionary (or free) cash flow in the Consumerco 
business, a large portion of that money had been sunk into Woodco and 
Foodco, and relatively little was reinvested in Consumerco. Moreover, lit-
tle of the cash had found its way back to Hexa’s shareholders. Over the 
previous five years, Hexa had, in effect, been borrowing to pay dividends 
to its shareholders.
The corporate-strategy team analyzed each business unit to find opportu-
nities to improve operations or possibly divest the business. While Consum-
erco had built strong brand names and most of its product lines had enjoyed