Competing Financial Performance Measures

Daniela Venanzi

Chapter Chapter 2 in Financial Performance Measures and Value Creation: the State of the Art, 2012, pp 9-31 from Springer

Abstract: Abstract The choice of financial performance measures is one of the most critical challenges facing organizations. Performance measurement systems play a key role in developing strategic plans, evaluating the achievement of organizational objectives, and rewarding managers. The measurement of financial performance in terms of accounting-based ratios has been viewed as inadequate, as firms began focusing on shareholder value as the primary long-term objective of the organization. Hence, value-based metrics were devised that explicitly incorporate the cost of capital into performance calculations. In this chapter, the following value-based measures are discussed, by focusing on their measurement logic: the economic value added (EVA), the cash flow return on investment (CFROI), the shareholder value added (SVA), the economic margin (EM) and the cash flow value added (CVA). The recently emerging emphasis on market value-based measures as the best metrics for value creation is also briefly analyzed.

Keywords: Financial performance measures; Discount cash flow (DCF) model; Economic value added (EVA); Cash flow return on investment (CFROI); Shareholder value added (SVA); Economic margin (EM); Cash value added (CVA); Residual income (RI); Market value metrics (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbrcp:978-88-470-2451-9_2

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DOI: 10.1007/978-88-470-2451-9_2

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