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Shareholder value analysis SVA.

 

Without you of the company by looking at the returns against the stockholders and is based on the view that the objective of the company's directors is to maximize the wealth of the stockholder.

 

SVA is a method of financial analysis that measure shareholder value by estimating the total net value of the company based on present and future cash flows and dividing this figure by the value of its shares.

 

Advantages.

Long-term financial view, based strategic decisions.

Offers a universal approach.

Forces the organization of focus on the future.

 

Disadvantages.

Accurately estimating.

Developing and implementing can be a long process.

Communicating the approach can be difficult.

Requires more complete information than traditional measures.

 

Checklist.

1.  Understand and calculate the company's shareholder value.

Understand its implementations.

Total business value has three components.

Present value of cash flows, future.

Residual value of future cash flows, beyond the planned period.

The weighted average cost of capital.

2.  Gain top management commitment.

Need to commit.

3.  Identify the company's key value drivers and set targets.

Setting performance targets.

Assign responsibility to individual managers.

Reviewing the company's financial performance against competitors.

Developing strategic plans.

A process of trial and error.

Fundamental to managing, controlling and making improvements in the business.

4.  Communicate the approach and train staff.

Managers need to understand the broad concept of creating shareholder value.

Managers need to understand the importance of identifying, controlling in improving the performance of value drivers and the key factors that influence them.

Might have resistance.

Managers need to be fully trained.

5.  Change the company's information systems to monitor and measure progress.

The systems usually need to be revised.

Managers must measure and monitor information about the company's key value drivers and targets.

6.  Change managers financial incentive packages.

Reward performance that add shareholder value (within realistic time periods).

7.  Monitor and review progress.

Continuous monitoring and redefinition of targets as circumstances change.

Appraisals, performance reviews, management meetings, and key decision should all focus on progress so far achieved and actions required to continue building shareholder value.

Without consistent emphasis on value creation, managers might continue to focus on targets that have become irrelevant or actually harmful to the long-term value of the business.

 

Summary.

Take time to understand.

Review internal systems.

Be patient.

Do not cut corners.

Don't be half hearted or hesitant.

 

Thought starters.

Have you set realistic goals.

Have you explain the new approach to the company's stockholders.

Have you examine your company strategies, procedures, and processes.

 

End of data.

 

 

 

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