Managing Shareholder Value Essay Example | Topics and Well Written Essays - 2000 words

Managing Shareholder Value - Essay Example For effectively planning and managing the funds, another scorecard of metrics is being developed with the provision of incentives for bettering the budgeted figures being used. All of these elements when considered individually excel with their simplicity. But when the system as a whole is looked at it turns to be complex with a number of "metrics, methods and messages" which makes the understanding of the finance executives of the shareholder value rather difficult. Hence it becomes vitally important that the CFO of any organization coordinates his efforts in designing the systems of the financial management with the CEO and the directors of the company so that the internal corporate governance is strengthened and if necessary modified to meet the firm's requirements. With this background this paper envisages presenting a report on the degree of profit measure of economic surplus and shareholders funds economic value accurate the metrics of the key economic visions of a firm. The shareholder value is represented by the wealth a company creates through its profitability for its shareholders. The shareholder value also includes the broad framework in which the firm operates to achieve the shareholder value and it also includes the organizational culture. ... areholder Value theory works on the premise that the value created by a business is best represented by the change in its economic value that is, the change in the net present value of its expected future cash flows to shareholders."1 There are a number of Shareholder Value measures which are being used for monitoring and evaluating the performance of the organization as well as rewarding the employees. One of the most popular methods of shareholder Value Measure is the Economic Value Added (EVA) approach. 2.1 Rationale behind adopting Shareholder Value Approach: The Shareholder Value approach has increasingly been adopted due to the following factors: The managers always feel that there exist a difference in the value of the firm as perceived internally and by the shareholders and this approach helps them to bridge the gap It is also necessary that the investors should know the true economic value of the firm for making their investment decisions on the basis of the economic profit of the firms. The accounting statements present rather a historic value and analysis of the performance of a company and it is necessary to have information on the future value of the company. Since the shareholder value is based on projected cash flows allowing for the cost of capital which are also discounted are less influenced by accounting rules and hence project the true value of the firm. Due to the globalization there is a delay in accessing the standard measures of performance Due to increased contribution to business by the information technology the expectations of investors has increased to get more clear measures of performance. The above factors necessitate adopting a proper measure for the assessing the value of a firm from a shareholder's perspective and Economic Value