Network Closed-Cycle Conformance....

Network Closed-Cycle Conformance….

(…to Upgrade your PE!)

Prasad Rao, MTech, PhD PennState

Director, AltKuznets Sustainability Advisors

Click here for the Biz Sales Office

For decades, the Capital markets that valued Firm Equities, focussed unvaryingly on expanding Markets, Sales Volumes, Revenues and Profits. Then came Costs, Innovation and Industry Concentration. Other determinants of Market valuation, ratios and measures followed – Net Reserves, Tax Efficiency, Ad Effectiveness, Investor Awareness, so on and so forth. Sustainability took a back seat, and when it come in to focus, it leaned more to the Social than Environmental Sustainability. In other words, more of Corporate Social Responsibility and the less of Climate Change. It is indeed fortuitous that Governments, with a longer foresight due the responsibility of ensuring the safety and sustainability of its people, invested in R&D that yielded the Renewable Technologies of the day. However, and despite the various Renewable Pollution abatement technologies, a common metric applicable across Sectors and Hierarchical Market tiers eluded analysts. AltKuznets in its seminal analysis of Waste externalities, offered a measure to quantify the Closed-Cycle Score, CCS, across the various Sectors of the economy. It also proposed strategies that further incremented the potential to upgrade PE of firms that adopted and incremented the CCS. Specifically, it suggested how listed firms could buy Sustainable expenditures in to their Sustainability capital and leverage the same toward a PE Upgrade in the Equity market.

In this manuscript, AltKuznets proposes a CCS Strategy that offers the potential of a further PE increment. It exploits the Buyer-Seller and hierarchical relationships that exist amongst firms listed in the Equity markets. The strategy rests on the principle CC firms prefer to do business with CC-conformable firms over non-conforming entities, and the same would obtain them a valuation advantage in the market over other firms that conduct business regardless of CC affiliations. By this AltKuznets design, firms are advantaged in their Closed-Cycle Scores by weighting in the CCS scores of firms they do business with - whether Buyers, Sellers, or hierarchical Corporates associates. The strategy creates a Network effect amongst CC-compliant firms that expands their fortunes and generates a positive payoff externality in the form of a ‘public incremental PE’ beyond what they are privately invested in. In a Bullion-administered CC Equity market, firms that do business with other firms with notable CCS Scores claim a higher Benchmark PE relative other firms.

Let us, to start with, .....