Financial and Value Metrics Based Performance Evaluation of North American Pulp and Paper Companies and Identification and Adjustment of Deficiencies to Compete in the Global Market Place, 2007 Engineering, Pulping & Environmental Conference

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The performances of 27 of the 39 largest North American Pulp and Paper Companies are evaluated based on certain financial and value metrics. Since only a company’s historical growth and returns on capital – not its future performance - can be measured directly, the potential for future growth and returns must be inferred. To do so, it is necessary to devise metrics that can gauge not only the short-term performance but also the long-term health of the companies. A company on a short term may show strong growth and returns on capital, but health metrics are needed to determine if that performance is sustainable. Using information available in the public domain space, an attempt has been made in this paper to evaluate not only the current financial performance of the companies but also to forecast their long-term growth sustainability. The financial metrics used are: Operating Profit Margin (OPM), Net Operating Profit Less Adjusted Tax (NOPLAT), Return on Equity (ROE) and Return on Investment (ROI); each metric is weighted by its relative importance to performance evaluation. The value metrics used are: the ratio of Economic Return to Total Invested Capital (ER/TIC), the ratio of Economic Value Added to Total Capital (EVA/TC), the ratio of Market Valued Added to the Market Value of Equity (MVA/MV of Equity) and the ratio of Shareholder Value Creation to the Return on Capital (SVC/CR). Value metrics are also weighted according to their relative importance to the evaluation to the performance of companies. The objective of the study is to forecast the Future Free Cash Flow (FFCF) of a company by using historical financial performance data and then to use the FFCF to conclude the sustainability and long-term viability of these companies.