One of the key measures of corporate performance today is shareholder value. In
other words, what is the company worth to its owners? Increasingly senior man-
agement within the business is being driven by the goal of enhancing shareholder
value. There are a number of complex issues involved in actually calculating share-
holder value but at its simplest it is determined by the net present value of future
cash flows. These cash flows may themselves be defined as:
Net operating income
less
Taxes
less
Working capital investment
less
Fixed capital investment
=
After-tax free cash flow
More recently there has been a further development in that the concept of eco-
nomic value added
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