The are three primary sources of shareholder returns: Earnings growth (EPS) Multiple expansion (P/E) Dividends

Earnings Growth The basis of earnings growth is: revenue growth and margin development. Aside from different price developments, what else explains the large differences in growth apparent among companies in the same industry? The first step is to disaggregate overall growth into its three main components: Portfolio momentum: this is the organic revenue growth a company enjoys because of overall expansion in the market segments represented in its portfolio Market share performance: this is the organic revenue growth (or reduction) a company records by gaining or losing share in a particular market. Mergers and Acquisitions: This represents the inorganic growth a company achieves when it buys or sells revenues through acquisitions or divestments

Note: Baghai et al. analyzed the relative importance of these three components to growth of more than 416 large companies around the world from 1999 to 2006. the results show that portfolio momentum and M&A explain far more fo the differences in the growth of large companies than growth in market share does. The growth rates of portfolios (momentum) can be influenced by: Selective acquisitions and divestments, which helps by changing exposure to growing and shrinking market segments Introducing new product categories, or creating new markets Note: work by Baghai shows that achieving the highest revenue growth may depend on choosing the right markets and acquisitions rather than gaining market share. However, the highest growth will not necessarily created the most value, because the three drivers of growth do not all create value in equal measure. Note: the value a company can create from increasing market share depends on both the rate of growth in the market in question and the way the company goes about gaining market share. There are three main ways to growth market share: Gaining share in a fast-growing market Gaining share from incremental innovation Gaining share from product, pricing and promotion

Market share performance is dependant upon: Share of preference: can be increased through product, pricing and promotion Share of voice: the share of voice can be increased by increasing advertising etc. Share of distribution: can be increased through more intensive distribution In terms of marketing mix: Product: change product attributes, improve quality Price: decreasing prices can drive volume gains Distribution: add new distribution channels, improve existing ones Promotion: increasing advertising expenditures Note on growth: 'Growth creates value only when a company's new customers, projects, or acquisitions generate returns on invested capital (ROICs) greater than the cost of capital. And finding good, high-value-creating projects becomes increasingly difficult as companies grow larger and their industries ever more competitive.' Mckinsey on Finance Note: sustaining high growth is a major challenge to companies. Given the natural life cycle of products, the only way to achieve consistently high growth is to consistently find new product markets and enter them successfully in time to enjoy their more profitable high-growth phase. Also, for each product that matures and declines in revenues, the company needs to find a similar-sized replacement product to stay level in revenues and even more to continue growing. The key question is: how easily can competitors respond to a company's growth strategy? The growth strategy with the highest potential in this respect is true product innovation, because entirely new product categories by definition have no established competition. Attracting new customers to an existing product or persuading existing customers to buy more of it also can create substantial value, because direct competitors in the same market tend to benefit as well. Growth through bolt-on acquisitions can add value, because such acquisitions can boos revenue growth at little additional cost and complexity. Typical much less attractive is revenue growth from market share gains, because it comes at the expense of established, direct competitors, who are likely to retaliate, especially in maturing markets. Margin expansion (contraction) Pricing One of the key driver of a company's ability to price is competitive advantage. Competitive advantage derives from some combination of fives sources of advantage that allow companies to charge a price premium and four sources related to cost and capital efficiency: Innovative products: difficult to copy or patented products, services or tech. Quality: customers willing to pay a premium for a real or perceived difference Brand: customers willing to pay a premium based on brand Customer lock-in: customers unwilling or unable to replace product or service

Rational price discipline: lower bound on prices established by large industry leaders through price signalling or capacity management