The Strategic Value Analysis methodology

FutureValue assesses the strategic value added by FTSE350 companies in their Annual Reports on a comparable basis. It uses an analysis process defined by a robust generic strategic framework. The Operating and Financial Review Best Practice Statement of 2006 (Reporting Statement 1) indicates that best practice in corporate reporting would expect to find all the components that are part of this framework in an Annual Report.

Both the analysis process and the underlying framework acknowledge that, while some companies still look to benefit from the best practice guidance laid out in the Reporting Statement, the minimum standard of compliance for all listed companies is the Enhanced Business Review laid down in the Companies Act 2006. The two are convergent. The analysis also takes into account the strategic implications of the new UK Corporate Governance Code.

The figure below captures the relationship of the five key 'content' factors of strategic value analysis. In addition, communication and coherence are the other two factors that ascertain comparatively how easily the presented strategic content can be accessed and assimilated by Report users. It also acknowledges that a company or group's business model will be constant over time and the foundation of objectives and strategy. The framework also reflects in 'Governance' that that strategy is about process as well as content.

Strategic Value Framework

FutureValue analyses each Annual Report in depth against these seven core factors – five content factors, plus communication and coherence. Rigorous evaluation enables a consistent and comparable score for each factor [out of 10.0]. FutureValue then averages the combined scores for the seven factors to arrive at an overall 'Strategic Value Added Score' for each company.

Strategic Value Analysis as a valuable technique will have even greater relevance in the impending era of the annual Strategic Report, to which the UK government has not committed as a replacement for the Annual Report.

Scoring System

The figure above illustrates the actual score profile of a FTSE100 Company. For each factor a Company can score 10 points. There are seven factors. The overall score is a simple average of the seven factors. Five factors are content-based.  However, we also score for standards of communication and coherence. This is because the original academic research observed that the correlation between narrative disclosure and share price performance is basically driven by shareholder confidence. So, the capacity to access and assimilate narrative content is central.  In our scoring model Communication and Coherence account for just over one quarter of the overall score.

Evaluation Process

31 questions make up our evaluation process. We assess each question on a Likert scale of 10 [Definitely] down to 0 [Not at all].

These questions set out to answer the following: