Share hlder value creation
- 2. K SYAM BHUSHAN KUMAR 16ME1OO48 MBA SFM
- 3. SHARE HOLDER VALUE CREATION • Maximizing share price Managing for earnings Doing ‘anything’ to make a profit • ex: r>k • Businesses that fall into above traps end up being short-term oriented at the expense of long-term value
- 4. Approaches for measuring share holder value A. traditional measure Earning per share Return on investment Return on equity
- 5. Modran measure Market value added(MVA) Market to book value(EVA) Economic value added(TSR) Total share holder value(TSR)
- 6. Market value added (MVA) The market value added (MVA) can also be defined as the difference between the current market value of the firm and the book value of capital employed by the firm. MVA=mva-book value of common stock
- 7. Market to book value(EVA) • An alternative measure of share holder value creation is the market to market value approach • It means the ratio of the share price to the book value per share. mkv=market price per share/book value per share
- 8. Economic value added(TSR) • In corporate finance, economic value added (EVA) is an estimate of a firm's economic profit, or the value created in excess of the required return of the company's shareholders. • EVA is the net profit less the equity cost of the firm's capital. The idea is that value is created when the return on the firm's economic capital employed exceeds the cost of that capital. • This amount can be determined by making adjustments to GAAP accounting. There are potentially over 160 adjustments but in practice only several key ones are made, depending on the company and its industry.
- 9. TOTAL SHARE HOLDER VALUE(TSR) When calculating TSR, an investor must account for only the dividends received during the period of stock ownership. For example, he may own the stock on the day the dividend is payable, yet he receives the dividend only if he owned the stock on the ex-dividend day.