V-Matrix Concept
V-Matrix, developed by Patrick McNamme, from University of Ulster, is used to evaluate the company’s strategies success through the comparison of its financial performance and to plan financial strategies based on the comparison between the capacity to generate income and the capital cost.
The V indicator of the mold (that means valorization factor) is calculated by the division of the investment profitability (ROI) by the capital cost (K):
V = ROI / K
After collecting the financial demonstration data and calculating the ROI and K of the company and the competitors with who intends to compare, the mold is built, representing K on the horizontal axis and ROI on the vertical axis. For the tendency analysis can be placed the values of different years and arrows that join the different points and that show the directional movement. The mold completes drawing on it one diagonal that represents the points in which the investments profitability (ROI) equals the capital cost (K), being, the points in which V is 1. When the company is above the diagonal, means that the V is superior to 1, this is, that the investments profitability is superior to the capital cost; when is under, means that the value of V is inferior to 1, being, that the investments profitability is inferior to the capital cost, a situation that reveals a bad financial performance; when is very close to the line, means that the company is very sensitive to slight changes in investments profitability or in the capital cost.
