Page 81 - Design for Environment A Guide to Sustainable Product Development

60 Cha pte r F o u r

Components of Shareholder Value (continued)

generate cash flow. Conversely, value is destroyed by a decrease
in cash flow or an increase in capital requirements. Note that the
“bottom line,” corresponding to the profit and loss statement, is
just one part of the EVA equation. The other part is concerned
with capital and corporate assets, reflected in the balance sheet.
Figure 4.4 breaks down these two terms, indicating how
environmental excellence can contribute to value creation. After-
tax operating profit can be improved either by increasing rev -
enues or by reducing costs. Capital charge can be reduced
either by managing assets more effectively or by decreasing
the weighted average cost of capital (WACC) through favorable

finan cing rates. Accordingly, DFE practices can deliver four major
type s of tangible value creation:

1. Top-Line Growth: DFE contributes to increased reve-
nues through environmentally preferred product differ-
entiation, improved license to operate in existing markets,
or penetration of new markets. In addition, the practice
of concurrent engineering helps to reduce cycle time for
new product development, which leads to earlier intro-
duction and increased market share.
2. Operating Efficiency: DFE applied to manufacturing
and supply chain technologies leads to leaner and
cleaner processes, resulting in greater productivity and
lower operating costs. Resource conservation and recov-
ery help to reduce material and energy costs, as well as

FIGURE 4.4 Economic value creation opportunities.