The Art of Business Value

2

The Meaning

If ROI is not the right measure of business value, then what is?

Ultimately, in a capitalist economy the duty of a corporation is to return value to its owners. Some writers have argued that the only way to deliver on this goal is to manage to it directly, rather than using proxy metrics like ROI. Such an approach is referred to as “Management by Value” or the “Shareholder Value Approach.” According to this way of thinking, managers aim at making investments that maximize Market Value Added (MVA) or Shareholder Value Added (SVA). The technique is described well in books on valuation by Alfred Rappaport¹ and Tom Copeland.² To maximize ...