Information technology value strategy

• US 20050234794A1
• Filed: 08/02/2004
• Published: 10/20/2005
• Est. Priority Date: 07/01/2003
• Status: Active Grant

• Current Assignee: Accenture Global Services Limited (Accenture PLC)
• Original Assignee: Accenture Global Services Limited (Accenture PLC)
• Inventors: Ostergard, Michael Kirk, Melnicoff, Richard M.
• Granted Patent: US 7,937,304 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

The present invention provides a system and related method for automatically examining a technology expenditure by evaluating a company'"'"'s financial data and evaluating factors affecting the company'"'"'s shareholder return. Specifically, the present invention evaluates a company'"'"'s spread through that company'"'"'s debt and equity costs. The present invention further measures returns to investors from company growth, either organic growth or growth through Mergers and acquisitions. Proposed technology expenditures may then be evaluated according to their predicted changes to accounting values and the resulting changes in shareholder value from these changes.

Claims

1. A computer-based system for automated evaluation of a technology expenditure by an organization, the system comprising:

communication means for accessing financial information on the organization;

a storage means for storing said accessed financial information;

an investment return evaluation module, said equity return evaluation module receiving the accessed financial information and calculating a first return on invested capital;

an investment costs evaluation module, said investment costs module receiving the accessed financial information and calculating a first weighted average cost of capital;

a growth estimation module, said growth estimation module receiving the accessed financial information and calculating a first total growth comprising a first organic growth and a first mergers and acquisitions growth;

a economic performance calculation module, said economic performance calculation module calculating a first total return to shareholders using the first calculated return on invested capital, the first calculated weighted average cost of capital, and the first total growth, and

a lever strength analysis module, said lever strength analysis module calculating a change in shareholder return from modifying one or more entries in said financial information, the financial information changes caused by the technology expenditure.

2. The system of claim 1, whereby the investment return evaluation module calculates the return on invested capital by calculating an operating margin, by calculating an capital utilization, and by multiplying the operating margin by the capital utilization.

3. The system of claim 2, whereby the debt return evaluation module calculates the return on invested capital (ROIC) using the following equation:

4. The system of claim 3, whereby the debt return evaluation module calculates NOPLAT using the following equation:

NOPLAT=EBITA−

Cash Taxes

where EBITA (Earnings Before Interest, Taxes, and Amortization) is calculated by determining revenue and adjusting for costs.

5. The system of claim 1, whereby Weighted Average Cost of Capital (WACC) calculated by the investment costs evaluation module comprises a weighted sum of costs of debt holders and costs of equity holders.

6. The system of claim 5, whereby the investment costs evaluation module calculates Weighted Average Cost of Capital (WACC) using the following equation:

WACC=K_d*(1−

t)*D/(D+E)+K_e*E/(D+E)

where K_d is a cost of debt,

t is a tax rate on the debt,

D is a market value of the debt,

E is a market value of the equity,

K_e is a cost of equity, and

E/(D+E), a ratio of a value of equity to a value of the total debt and equity is a weighting factor for the cost of equity.

7. The system of claim 6, whereby the investment costs evaluation module calculates the cost of equity, K_e, using the following equation:

K=r_f+(r_m−

r_f)*β

, where;

r_f is a risk-free rate of return available to investors;

r_m is a historic market risk premium; and

β

is a factor that returns differ from the returns of a market portfolio.

8. The system of claim 7, whereby the investment costs evaluation module calculates the β

value using the following equation;

9. The system of claim 1, whereby the investment costs evaluation module adjusts the calculated Weighted Average Cost of Capital (WACC) to reflect an equipment lease.

10. The system of claim 1, whereby the investment costs evaluation module adjusts the calculated Weighted Average Cost of Capital (WACC) to reflect a retirement liability.

11. The system of claim 1 further comprising a competitor model for calculating a competitor'"'"'s total return to shareholders.

12. The system of claim 11 further comprising a graphing model, said graphing model preparing a visual comparison of said organizations'"'"' return to shareholders and said competitor'"'"'s total return to shareholders.

13. The system of claim 1, whereby:

said equity return evaluation module receives the modified financial information and calculates a second return on invested capital;

said investment costs module receives the modified financial information and calculates a second weighted average cost of capital;

said growth estimation module receives the modified financial information and calculates a second total growth comprising a second organic growth and a second mergers and acquisitions growth;

said economic performance calculation module calculates a second total return to shareholders using the second calculated return on invested capital, the second calculated weighted average cost of capital, and second calculated total growth; and

said lever strength analysis module compares said first and said second total returns to shareholders.

14. The system of claim 13 wherein said modified financial information reflects a predicted change associated with the technology expenditure.

15. The system of claim 13, whereby said lever strength analysis module calculates changes in shareholder return from modifying multiple entries in said financial information;

and said lever strength analysis module identifying one or more of said modified entries causing a desired change in shareholder return.

16. The system of claim 15, wherein the lever strength analysis module further proposes technology expenditures to achieve said identified modified entries.

17. The system of claim 13 further comprising a competitor lever strength analysis module that calculates a change in a competitor'"'"'s shareholder return from similar modifications of financial data associated with the competitor.

18. The 0system of claim 13 further comprising a lever strength graphical display module that graphically displays said changes in the organization'"'"'s and competitor'"'"'s shareholders returns.

19. A computer-implemented method for automated evaluation of a technology expenditure by an organization, the method comprising the steps of:

a computer accessing remotely stored financial information;

said computer storing said financial information

said computer calculating a first return on invested capital using said stored financial information;

said computer calculating a first weighted average cost of capital (WACC) using said stored financial information;

said computer calculating a first total growth using said stored financial information, said first total growth comprising a first organic growth and a first mergers and acquisitions (M&

A) growth

said computer calculating a first total return to shareholders using the first calculated return on invested capital, the first calculated weighted average cost of capital, and the first total growth;

said computer calculating a change in shareholder return from modifying one or more entries in said financial information, the financial information changes caused by the technology expenditure.

20. The computer-implemented method for automated performance evaluation of an organization of claim 19, whereby the step of calculating the first return on invested capital comprises calculating an operating margin, calculating an capital utilization, and multiplying the operating margin and the capital utilization.

21. The computer-implemented method of claim 20, whereby the step of calculating the first return on invested capital (ROIC) comprises using the following equation:

22. The computer-implemented method of claim 21, whereby the step of calculating the return on invested capital (ROIC) further comprises determining NOPLAT using the following equation:

NOPLAT=EBITA−

Cash Taxes

where EBITA (Earnings Before Interest, Taxes, and Amortization) is calculated by determining revenue and adjusting for costs.

23. The computer-implemented method of claim 19, whereby the step of calculating the Weighted Average Cost of Capital (WACC) comprises determining a weighted sum of costs of debt holders and costs of equity holders.

24. The computer-implemented method of claim 23, whereby the step of calculating the Weighted Average Cost of Capital (WACC) comprises using the following equation:

WACC=K_d*(1−

t)*D/(D+E)+K_e*E/(D+E)

where K_d is a cost of debt,

t is a tax rate on the debt,

D is a market value of the debt,

E is a market value of the equity,

K_e is a cost of equity, and

E/(D+E), a ratio of a value of equity to a value of the total debt and equity is a weighting factor for the cost of equity.

25. The computer-implemented method of claim 24, whereby the step of calculating the Weighted Average Cost of Capital (WACC) further comprises calculating the cost of equity, K_e, using the following equation:

K_e=r_f+(r_m−

r_f)*β

, where;

r_f is a risk-free rate of return available to investors;

r_m is a historic market risk premium; and

β

is a factor that returns differ from the returns of a market portfolio.

26. The computer-implemented method of claim 25, whereby the step of calculating the Weighted Average Cost of Capital (WACC) further comprises calculating the β

value using the following equation;

27. The computer-implemented method of claim 19, whereby the step of calculating the Weighted Average Cost of Capital (WACC) further comprises adjusting to reflect an equipment lease.

28. The computer-implemented method of claim 19, whereby the step of calculating the Weighted Average Cost of Capital (WACC) further comprises adjusting to reflect a retirement liability.

29. The computer-implemented method of claim 19 further comprising the step of calculating a competitor'"'"'s total return to shareholders.

30. The computer-implemented method of claim 29 further comprising a step of preparing a visual comparison of said organizations'"'"' return to shareholders and said competitor'"'"'s total return to shareholders.

31. The computer-implemented method of claim 19 further comprising the steps of:

said computer creating a set of modified financial information corresponding to said technology expenditure;

said computer calculating a second return on invested capital using said modified financial information;

said computer calculating a second weighted average cost of capital (WACC) using said modified financial information;

said computer calculating a second total growth using said modified financial information, said second total growth comprising a second organic growth and a second mergers and acquisitions (M&

A) growth; and

said computer calculating a second total return to shareholders using the second calculated return on invested capital, the second calculated weighted average cost of capital, and second first total growth;

said computer comparing said first and said second total returns to shareholders.

32. The computer-implemented method of claim 31 wherein said modified financial information reflects a predicted change associated with the technology expenditure.

33. The computer-implemented method of claim 19, whereby said computer calculates changes in shareholder return from modifying multiple entries in said financial information;

and said computer identifies one or more of said modified entries causing a desired change in shareholder return.

34. The computer-implemented method of claim 33, wherein the computer further proposes technology expenditures to achieve said identified modified entries.

35. The computer-implemented method of claim 19 further comprising a step of calculating a change in a competitor'"'"'s shareholder return from similar modifications of financial data associated with the competitor.

36. The computer-implemented method of claim 35 further comprising graphically displaying said changes in the organization'"'"'s and competitor'"'"'s shareholders returns.

37. A computer-readable storage medium containing a set of instructions for evaluating a technology expenditure by an organization, the set of instructions implementing a process comprising:

accessing financial information on the organization;

storing said accessed financial information;

calculating a return on invested capital using said stored financial information;

calculating a weighted average cost of capital using said stored financial information;

calculating total growth using said stored financial information, said total growth comprising organic growth and mergers and acquisitions (M&

A) growth;

calculating a total return to shareholders using the return on invested capital, the weighted average cost of capital, and the total growth; and

calculating a predicted change total return to shareholders caused by the technology expenditure.

38. The computer-readable storage medium of claim 37 wherein the process implemented by the set of instructions further comprises:

modifying said financial data, said changes predicting the accounting effects of the technology expenditure; and

calculating a changes to total return to shareholder caused by the modifying said financial data.

39. An automated technology evaluation system comprising:

a remote data storage device storing financial information on an organization;

a network enabling access to the data storage device;

a computer connected to the network; and

a program resident on said computer, said program comprising a set of instructions comprising;

storing said accessed financial information;

calculating a return on invested capital using said stored financial information;

calculating a weighted average cost of capital using said stored financial information;

calculating total growth using said stored financial information;

calculating a total return to shareholders using the return on invested capital, the weighted average cost of capital, and the total growth; and

calculating a change in return to shareholder caused by the technology expenditure.

40. The automated technology expenditure evaluation system of claim 39, whereby the return on invested capital (ROIC) equals the organization'"'"'s total operating profit, adjusted for taxes, and divided by investor-provided capital.

41. The automated technology expenditure evaluation system of claim 39, wherein the set of instructions further comprises:

modifying said locally stored financial data; and

calculating a changes to return to shareholder caused by the modifying of said locally stored financial data.

42. The automated technology expenditure evaluation system of claim 39, wherein the set of instructions further comprises calculating changes in shareholder return from modifying multiple entries in said financial information;

and identifying one or more of said modified entries causing a desired change in shareholder return.

43. The automated technology expenditure evaluation system of claim 42, wherein the set of instructions further comprises proposing a technology expenditure to achieve said identified modified entries.