Key Performance Indicators For Dummies

Chapter 10

Reporting to the Masters: Shareholder and Value-Added KPIs

In This Chapter

Understanding value from a shareholders perspective

Appreciating the importance of opportunity cost

Measuring shareholder return

Profit, revenue, cash flow and liquidity KPIs are important to all companies regardless of sector, industry or whether the business is privately or publicly owned.

Once a company becomes publicly listed, however, investors and analysts will use certain KPIs to decide how strong your business is. Their interpretation of these metrics will influence whether shareholders decide to buy, sell or hold your stock.

In a public company, shareholders wear the trousers. Everything a business does, every strategy it embarks on, every decision it makes is focused on delivering shareholder value, and the KPIs detailed in this chapter help the leadership team know how well they are doing against that objective.

The Ultimate Value Metric: EVA

In the past, profit-based KPIs were considered the best and only real way to measure corporate performance and therefore shareholder value.

But looking at profit and revenue can be misleading for two reasons.

• Profit calculations ignore the costs ...