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A company's value is determined by the cash flow it generates, which depends on two drivers: return on invested capital (ROIC) and revenue growth. The value driver formula makes this explicit: value = NOPLAT × (1 − g/ROIC) / (WACC − g), so growth adds value only when ROIC exceeds the cost of capital and destroys value when ROIC falls below it. Faster growth multiplies whatever spread already exists, positive or negative.
Actions that raise reported earnings without changing cash flows do not create value, and markets see through them. Examples include changing an accounting method, some share buybacks and EPS-accretive acquisitions. Value is conserved: moving claims around, relabelling cash flows or changing a company's ownership leaves total value unchanged unless it alters the size or risk of the cash flows themselves.
Before forecasting, recast the balance sheet and income statement to separate operating items from nonoperating items and capital structure. Invested capital is operating working capital plus fixed assets and intangibles. NOPLAT is operating profit after operating taxes, with no financing costs. This lets ROIC and free cash flow measure operating performance alone, so the result is not distorted by leverage, excess cash or one-off items.