By M Barbera
This publication demanding situations the usefulness of conventional accounting formulae, equivalent to revenue or go back on funding, via measuring the price extra by way of an organisation's actions. It offers a spotlight for selection making, source allocation, functionality dimension and remuneration. It concludes through contemplating shareholder worth research.
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Additional resources for Shareholder Value Demystified: An Explanation of Methodologies and Use (Strategic Resource Management Series)
Sample text
So all of the measures that are in there in the SVA approach are consistent with the strategies because that is how we got the initial fifty. And then the way you cull that down is to go back and have a look at which ones are going to have most effect on our SVA. We selected 16. And so we have kept it consistent - balanced scorecard, SVA and strategic planning. The 16 levers or drivers are the important ones. There will be, of course, a whole suite of backup drivers and levers. So if the business unit managements want to do a drill-down on what the group office say are the important ones, there might be four or five others that are important and then there might be four or five for each of those.
If the inputs to all value methodologies contain estimates, perhaps the level of accuracy, and therefore value to organisations, of each can be judged by the degree to which the outputs of the measurement process correlate with stock prices. Academic research long ago established that the movement of share market prices, after allowing for general market movements, does not correlate with the financial information contained in annual reports unless that information has cash flow effects. Anecdotal evidence (for instance in articles in recent Australian business magazines, and BCG publications, or the convictions expressed by executives of various companies using, or about to use, one of these methodologies) concerning the correlation of share market prices and calculated shareholder value measures suggests that, while all are good, the more complex the methodology, the better the correlation.
It is therefore an absolute measure at any point of time. The change in MVA from one financial year to the next is equivalent to the EVA for that period. If EVA is positive for the period, MVA will increase; if EVA is negative for the period, MVA will decrease. 20 SHAREHOLDER VALUE DEMYSTIFIED MVA can also be a cumulative measure of corporate performance. When assessing past performance, the organisation can calculate the market value added (or lost) between two specific dates. Used as a forward-looking measure, the MVA is the present value of anticipated EVAs with the cost of capital used as the discounting factor.