If investors and managers should have learned anything from the turbulence both in markets and in the real economy in recent years, it’s that there is no substitute for real value creation. Financial engineering, excessive leverage, the idea during inflated boom times that somehow the old rules of economics no longer apply—these are the misconceptions upon which the value of companies are eroded and entire economies become inefficient. Conversely, real value creation builds stronger companies, economies, and societies.
Executives—and not just those in the corporate-finance function—can make smarter and more courageous strategic decisions if they arm themselves with the tools to understand which actions will create and destroy value within their organizations. In this interactive video, Tim Koller, a partner in McKinsey’s New York office, explains the four principles—or “cornerstones”—of corporate finance that can help executives figure out the value-creating answers to some of the most pressing corporate-finance questions. Koller, a coauthor of the recently published book Value: The Four Cornerstones of Corporate Finance, describes each principle, explains how it works, and draws on real company case studies to illustrate the strategic choices that executives make to create real value.