Managers can make better decisions if they can predict the impact of those decisions on the firm’s value. A simple way of valuing the equity of a company is to subtract its liabilities from assets. However, this book value has little resemblance to the real value of the company. First, the assets are recorded at historical costs. Second, assets such as trademarks, loyal customers, and talented managers do not appear on the balance sheet but may significantly affect the firm’s ability to generate profits.