Professional Documents
Culture Documents
9-1
Outline Managing
Shareholder Value
Value Drivers
Economic Value Added (EVA)
Paying for Performance
9-2
9-3
MVA
MVA = Firm Value Invested Capital
MVA
9-5
Business Valuation
Business Valuation
Model Approach
Accounting Model
Discounted CF
Model
Equity Value
[price earnings
ratio-PER] X
[earning per shareEPS]
PV of Future CF
Value drivers
Determinants of
accounting earnings
and the priceearnings ratio
Determinants of
firms future cash
flow and the cost of
capital
9-7
9-8
[FCF3/(1+kwacc)3] + [FCF4/(1+kwacc)4] +
[TV4/(1+kwacc)4]
TV4 = [FCF5 / kwacc ] assumption: FCF5 and the
rest are all equal, then discounted as a
perpetuity)
9-10
xxx
Less: Tax
(xxx)
=xxx
+xxx
Less investments:
- In net working capital
(xxx)
(xxx)
XXX
9-11
Example
9-12
9-13
9-14
Value Drivers
9-15
Value Drivers
Value Drivers
Value-enhancing strategies
Sales growth
Cost of capital
minus
[kwacc x invested capitalt-1]
Capital charge = the firms invested capital in the
beginning period multiplied by the firms WACC
9-18
multiply by
Invested capital (IC)t-1
9-19
9-20
9-21
Base pay
Bonus payment
Long-term compensation
9-23
9-24
9-25
Linking Pay to
Performance
Incentive Pay =
[base pay] x [fraction of pay at-risk]
x [actual performance/target
performance]
9-26
The End
9-28