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SHAREHOLDERVALUE
CREATION
PRESENTED BY-
PRIYA CHOPRA
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SHAREHOLDER VALUE
The value delivered to shareholders
because of management's ability to
grow earnings, dividends and share
price.
In other words, shareholder
value is the sum of all
strategic decisions that affectthe firm's ability to
efficiently increase the
amount of free cash flow
over time.
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SHAREHOLDER VALUE
CREATION
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CONT
Information drives decisions.
Decisions drive actions.
Actions create value.
CORPORATIONS ONLY CREATE
SHAREHOLDER VALUE
IF
INFORMATION CAN BE USED TO
MAKE BETTER DECISIONS
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DRIVERS OF SHAREHOLDER
VALUE
Shareholder value is derived from the markets
perception of a business ability to generate
returns today and in the future.
Shareholder Value = Current Performance +
Expectations for Future Performance
Shareholders evaluate current performance by:
How well the business is executed and
delivers its short-term results.
The organizations ability to control costs and
future liabilities and generate short-term profit.
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CONT
Integration of social and environmentalaspects into project and
operational decisions
to increase resource efficiency.
Future performance, on the other hand,
depend largely on ManagementsA
bility To formulate and execute strategic objectives
for the organization.
To manage emerging issues and assessing
risks and opportunities.
To build a culture of risk awareness.
To be innovative and creative.
To manage the reputation of the company.
To manage change, etc.
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MEASURES OF
SHAREHOLDER VALUE
Strategic Profit Model(SPM)- Measures
return on net worth.
Economic Value Added(EVA)=(Rate of
return - cost of capital) x capital
Market Value Added- Discounted sum of all
future expected economic value added.
OR
MVA= V- K
Total Shareholder Return(TSA)=
(PriceendPricebegin + Dividends) / Pricebegin
Value Based Management
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EVA STORY AT TCS
EVA plays an important role in transformingTCS from an Indian
enterprise with a global
reach to a truly global organisation.
Their first hand experience of the tool was a
revelation of the fact that EVA results in anenlarged pie which
benefits both the
individual and the organisation.
It is a barometer on how the organisation is
run, focussing on strategies and the
accountability of people.
While Indian corporates have taken to EVA,
they have customised it to suit their
organisational needs.
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EVA ADOPTED BY GODREJ
Adopted for value creation. Adopted it as a measure for all its
acquisition
related measurements.
This has been necessitated by the fact that
historically a large proportion of acquisitionshas turned out
negative for the acquirers.
All SBUs have improved business
performance, four had performed way ahead
of the stretch targets.
The Godrej group has also for the first time,
taken measures like eliminating bottom
performers, bringing in independent directors
on the board and setting up of a young
executive board.
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SHAREHOLDER VALUE
CREATION IN RELIANCE
On the basis ofSPM:
RONW = Return on Assets * Financial Leverage
It measures how much return the company
management can generate for its
shareholders.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2005 2006 2007 2008 2009
RONW
RONW
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ONGC
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2005 2006 2007 2008 2009
RONW
RONW
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On the Basis of EVA
EVA=(r-c)* K
where, r= return on capital employed
c = WACC , K= Capital Employed
WACC= Ke*We + Kd*Wd(1-t) + Ks*Ws
Ke=Equity Dividend%, Kd=Interest/ Debt,
Ks= Return On Equity
If r > c, positive value is added
If r < c, negative value is added
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RELIANCE
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ONGC
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SHAREHOLDER VALUE NETWORK
Management Decision
OperatingInvestment Financing
Sales growth
Operating
Profit Margin
Working Capital
Investment
Fixed capital
Investment
Cost of
Capital
Cash Flow from
Operations
Discount rate
Debt
Shareholder
Value Added
Capital
gains
Returns
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Conclusion
Three Tools forValue Creation:
Improvement in the company's
cash-flow margin.
Improvement in the productivity of
the company's assets.
Growth in investment.
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THANK YOU
