Ever wonder why companies wait for a crisis to take action they should be taking all along. A headline in today’s NACD Directors Daily reads “Anheuser-Busch announces cost savings to boost value in face of InBev bid”. and goeas on to say “the New York Times /AP (6/28, C4, Andersen) reported that on Friday, Anheuser-Busch detailed its plan to make the company more valuable than the offer of $65 a share that it rejected from its rival, InBev of Belgium, and gave 2008 and 2009 profit guidance above analyst expectations.”

One has to ask what has management and the board been doing all these years if not paying attention to increasing the value of the firm? This same question comes to my mind when I read about Private Equity firms who purchase companies, realign them and then sell them at an increased valuation.

We seem to forget that the goal is to continually increase the value of the firm and it takes some outside force to wake us up to this reality.

Now some of you may argue that this is completely contrary to my position that profit is not the end goal of business. Let me assure you the two positions are quite compatible and obvious if one asks the question what determines the value of the firm. If one only looks at the calculations of value, whether discounted cash flow or any other formulae, then one would naturally draw the conclusion it is the metrics (profit, earnings, EBITDA, etc.) that determines the firms value.

But what creates the metrics? What produces increased revenue and lower costs (the formulae for increased earnings).

I will answer that in my next post.