Financial Times Handbook of Corporate Finance, 2nd Edition

8

MEASURES OF VALUE CREATION

IntroductionUsing cash flow to measure valueShareholder value analysisEconomic profitEconomic value added (EVA^®)ConclusionNotes

Introduction

Managers at all levels need to establish plans for future actions. In drawing up these plans they need reliable measures of value to choose between alternative paths. The metrics discussed in this chapter are useful for this purpose.

Then, as strategic moves at both the corporate level and the business unit level unfold, managers need to monitor progress to see if they are still on-track to create value. Again, these metrics can be useful. Targets can be set, and, as milestones are passed, incentive schemes can bestow a share of the value created on those responsible. The ...