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Non-Financial Measures of Performance, and Creating Shareholder Value

Non-Financial Measures of Performance, and Creating Shareholder Value. What, other than profits, can add to value creation within a business?. Non-financial “Value Drivers” m ay be difficult to measure.

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Non-Financial Measures of Performance, and Creating Shareholder Value

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  1. Non-Financial Measures of Performance, and Creating Shareholder Value What, other than profits, can add to value creation within a business?

  2. Non-financial “Value Drivers” may be difficult to measure.

  3. * Unlike financial measures (such as profit), which are always backwards looking (in time), non-financial measures can be thought of as off-balance sheet assets that are forward-looking in time.

  4. The Balanced “Scorecard” ApproachA model of wealth creation

  5. Ultimately, reaching its targets and obtaining its objectives should lead to improved financial performance.

  6. The model is known as a “balanced” scorecard because it aims to strike a balance between…

  7. Because of competition for capital, it is necessary to focus on shareholder value creation. How to do this?

  8. However, the problems with using these traditional measures are…

  9. Economic Value Added (EVA) A financial way of measuring shareholder wealth creation is by using economic profit (or “economic value added” (EVA)), which subtracts the cost of equity capital from economic profit. = * WACC *Note: net operating profit includes revenues and expenses only from normal core business operations. *Note: “Net Assets” = assets – working capital liabilities = equity + long-term debt

  10. EVA calculations require adjustments to accounting statements (from figures published). For example…

  11. Other information in the example:

  12. First, calculate NOPAT from Net Income (operating profit)

  13. Next, calculate net economic assets from book assets

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