Shareholder value

Also known as: Shareholder value

Shareholder value is the definition of equity as market value. It describes the company value based on the respective share price.

Definition / explanation

The term shareholder value translates as “shareholder value” and gained in importance in 1986 with the publication of the book “Creating Shareholder Value” by Alfred Rappaport. Companies were requested to act in the interests of shareholders. The aim is to increase the satisfaction of these shareholders and to improve the distribution to them.

Zudem findet der Shareholder Value Verwendung in der Steuerung eines Unternehmens, bei der sogenannten Net present value method. Darunter versteht man eine Investition mit positivem Kapitalwert, mit dessen Hilfe vom Unternehmen ein Wert geschaffen wird.

A long-term goal of these investments is to improve the equity value. This value created by a stock corporation can also be understood as a shareholder benefit, but is also used in companies with other legal forms.

Due to strong criticism, the term shareholder value has been replaced by the term value-based view in the specialist literature and in some cases within companies.

Calculation of the shareholder value

Discounted cash flow method - The sum of the discounted cash flows is calculated minus the debt value. First, the free cash flows for the years are discounted and added up using the (1 + WACC) method. The same happens with the residual value and non-operational assets.

A total is formed from all results and the borrowed capital is deducted from this. The end result indicates the shareholder value.

Earned value method - Future profits and distributions are totaled.

Criticism of the shareholder value approach

Methodical criticism – Die Bestimmung der Unternehmenswerte und Kapitalkostensätze sind bei einem unvollkommenen Capital market unzulänglich. Es bestehen Anreizprobleme seitens des Managements, da das Shareholder-Value-System im Sinne des Anteilseigners handelt.

Content criticism - Equity providers are the only stakeholder group. When making business decisions, the public, the social environment, customers and employees are not taken into account.

Summary

  • Shareholder value corresponds to the company value and the dependent market value of the respective shares
  • The term “shareholder value” is also used under the term “value based view”
  • Company policy of shareholder value is aimed at increasing the share value
  • Shareholders have an influence on the management
  • The stakeholder approach also takes other interest groups into account, while the shareholder value approach only looks at the shareholders
Was the explanation to "Shareholder value"Helpful? Rate now:

That's what visitors have been looking for

  • shareholder value

Weitere Erklärungen zu Unternehmensführung