Explain about value based management, Strategic Management

Q. Explain about Value based management?

Value based management (VBM) is an approach which focuses on strategies and actions to create more value for shareholders.  Value being measured by share price (market capitalisation), dividends and other principles such as RI or EVA.  Value based management can often be referred to as shareholder value analysis (SVA). 

A value driver is any variable which significantly affects the value of an organisation. Alfred Rappaport developed seven 'value drivers' which can be used to improve shareholder value.

1. Sales growth e.g. growth in sales from one period to the next.

2. Operating profit margin e.g. PBIT ÷ Capital Employed.

3. Cash income tax rate e.g. minimising tax improves profitability.

4. Incremental fixed capital investment rate e.g. investment in non-current assets to finance projects would reduce cash-flows and therefore shareholder value.

5. Investment in working capital rate e.g. investment in current assets like inventory and trade receivables will reduce cash-flows and therefore shareholder value.

6. Planning period e.g. the further into the future organisation can predict cash-flow then the greater the net present value and so shareholder value that would be created.

7. Cost of capital e.g. the lower the cost of capital the greater the net present value and consequently shareholder value which would be created.

Posted Date: 8/9/2013 2:10:46 AM | Location : United States

Related Discussions:- Explain about value based management, Assignment Help, Ask Question on Explain about value based management, Get Answer, Expert's Help, Explain about value based management Discussions

Write discussion on Explain about value based management
Your posts are moderated
Related Questions

Recognizing a Company's Strategy 1.   A company's strategy is reproduced in its actions in the marketplace & the statements of senior managers regarding the company's current b

Choose a real life company.  This could be an organization from any industry.  No two students should select the similar company.  It could be the organization you are working in o

The following table shows present trips between three zones and the predicted total trips in 10 years. Distribute the predicted trips using the average factor method. Stop with two

Question: (a) To prepare a successful quality based strategy requires an effective leadership. Explain briefly the requirements of effective leadership in this context.

(A)    What is the optimal solution, i.e., how many units of every watch should be formed to maximize daily profits and how much daily profit will the company create? (B)    How m

Q. Divisional structures – product organisation? The functional structure is normally adopted by an entrepreneurial structure e.g. small business, because the organisation grow

do all organisations need strategic plans

a. Core competencies are the collective __________ in the organization

Jidoka - Quality At Source Jidoka was first introduced by Dr Taichi Ohno into the Toyota Motor Company in the early 1960s. In the process of producing an efficient material fl