Value Driver Tree

What is a value driver tree?

‍A value driver tree represents the connections between a company's financial statement elements and its fundamental value influencers. This visual aid assists in pinpointing crucial items that significantly impact a company's overall value and in monitoring the effects of changes in these elements on its value. It's also a tool for spotting potential risks and opportunities within the company.

How to create a value driver tree

‍Creating a value driver tree involves identifying and measuring the influence of a company's key value drivers. The process entails segmenting the company into its core business units or products and further subdividing each unit into its key value drivers. This tool helps gauge the impact of changes in these drivers on the company's overall value and determine which ones warrant deeper analysis.

Key components of a value driver tree

‍The value driver tree serves as a graphical tool to identify, monitor, and analyze the factors driving a company's stock price. Comprising boxes representing various financial metrics connected by arrows, it demonstrates the relationships and their strengths. This tool is instrumental in recognizing the pivotal metrics affecting a company's stock price and tracking their changes over time.

Using a value driver tree

‍Utilizing a value driver tree involves listing the company's key value drivers and their impact on the company's value. It's a tool to pinpoint avenues for value creation by focusing on specific drivers and to track how changes in these drivers affect the company's overall value.

Differences between a value driver tree and a value chain

‍A value driver tree visually displays the link between a company's financial items and the drivers influencing its value, while a value chain outlines the sequential steps a company takes to create value for customers. While value drivers affect profitability and cash flow, the value chain encompasses activities necessary to deliver a product or service. The value driver tree provides a more detailed view of the specific financial items influenced by each value driver.

Differences between a value driver tree and a value stream map

‍A value driver tree identifies and tracks sources of value creation within a business, structuring a hierarchical representation of the business and its contributing functions. In contrast, a value stream map visualizes material and information flow through a business, focusing on the sequence of activities involved in product or service creation and potential areas for process improvement to streamline and reduce waste.