Comment:
The Growing Role of Valuation in Corporate Strategy
In a market environment where growth alone no longer guarantees shareholder value, corporate executives are under increasing pressure to deliver more with less. EY’s recent article, Earning the Right to Grow: Capital Efficiency and TSR, sheds light on the increasingly strategic role of capital efficiency in determining which companies truly outperform in total shareholder return (TSR).
The analysis reveals that while many companies are successful in generating revenue growth, only those that deploy capital efficiently—measured through metrics like return on invested capital (ROIC)—consistently translate that growth into superior shareholder value. This distinction signals a broader shift: efficient capital allocation is no longer a back-office exercise, but a frontline lever for value creation.
Kevin Prall is a member of the IVSC’s Business Valuation Board and EY-Parthenon Managing Director, Strategy and Transactions, Ernst & Young LLP.
For corporate executives, this has profound implications. The findings suggest that growth investments must be guided not only by ambition but by clear visibility into value creation and risk. Capital efficiency becomes the lens through which executives can prioritise initiatives, justify resource allocation, and build investor confidence.
At IVSC, we see this research as a timely reminder of valuation’s evolving role in strategic decision-making. By linking investment strategy with forward-looking valuation insights, corporate leaders can better understand how markets perceive their ability to execute and grow. Valuation, in this context, is not just a financial assessment—it is a strategic tool to support sustainable, long-term growth.
EY’s work reinforces what leading executives already suspect: in today’s capital markets, value isn’t just created by investing more—it’s created by investing smarter.