How would you Analyse the Financial (Operational) Performance of a Company and the Investor Perception?


0

How would you Analyse the Financial (Operational) Performance of a Company and the Investor Perception?


By using PARAMETERS such as:

1.      NET PROFIT?
2.      GROSS MARGINS?
3.      RETURN ON ASSETS?
4.      CASH FLOWS?
5.      EARNINGS PER SHARE?
6.      P/E MULTIPLE (PRICE-EARNINGS RATIO)

Performance and Measurement Criteria of Corporate Entities
Traditional profit based measures
1.      Earnings Per Share (EPS),
2.      Return On Capital Employed (ROCE),
3.      Return On Net Worth (RONW),
4.      Net Operational Profit After Tax (NOPAT) and
5.      Earning Before Interest and Tax (EBDIT).

New ‘trendier’ value based performance measures:
1.      Market Value Added (MVA),
2.      Shareholder Value Added (SVA),
3.      Cash Value Added (CVA), and Economic Value Added (EVA).
Companies use these measures for making strategic decisions, evaluating individual product or lines of business, bonuses for line managers and business unit heads and investors for valuations.

Shareholder’s Wealth Creation:
Maximising Shareholder’s wealth has become the new corporate paradigm. Managers and researchers have traditionally recognized shareholders wealth maximization as the ultimate corporate goal. The owners of the company i.e. the shareholders are more interested in maximizing their wealth. Maximising the shareholders wealth means maximizing the net worth of the company for its shareholders. This is reflected in the market price of the shares held by them. Therefore shareholders which means maximizing the market price of the shares.
Shareholders value maximizations, which is the heart of economic growth, as a long term proposition that delivers higher economic output and prosperity through productivity gains, employment growth and higher wages. Management’s most important mission is to maximize shareholders wealth. Therefore wealth creation is dependent on management’s performance. In order to measure the performance of company’s management; accountants, finance managers, investors, analysts and other users use several tools.
In the past decade sea changes has been made in the performance and measurement criteria of corporate entities, from the traditional profit based measures like, Earning Per Share (EPS), Return On Capital Employed (ROCE), Return On Net Worth (RONW), Net Operational Profit After Tax (NOPAT) and Earning Before Interest and Tax (EBIT), to the new ‘trendier’ value based performance measures, like Market Value Added (MVA), Shareholder Value Added (SVA), Cash Value Added (CVA), and Economic Value Added (EVA).
It would be very useful to measure and compare the shareholders wealth created by company on the basis of traditional and modern measurement criteria for the purpose of best corporate governance and improving credit worthiness. It is important to measure the shareholders wealth on the basis of traditional and modern methods and compare them to know relative importance of measurement.
Shareholders need some tools, which would enable them to assess and forecast the performance of company’s management. Shareholders expect to achieve the required return from their investments. In order to measure the performance of company’s management, various users use several tools. Major problem of the shareholders is to understand that among the various tools available in order to measure the performance of company’s management, which tool has more relationship with shareholders wealth creation. Among the modern tools, Economic Value Added (EVA) has received attention and recognition in accounting and financial literature as a vital tool to measure corporate performance. Investors, who want to buy stocks, need to know the relationship between return on their investments and financial information. They have to know measurement tools that help them
to buy the stock with higher return; and Economic Value Added (EVA) concept is a correct criterion in performance management, because it includes all the cost of capital employed.
Shareholders wealth creation is the ultimate objective of corporate financial management and problem of the shareholders is to understand that among the various tools available in order to measure the performance of company’s management, which tool has more relationship with shareholders wealth creation. There is a need to assess the extent of and change in shareholders wealth creation. Has there any change in the shareholders wealth creation and the extent of change in it, if any. There is also a need to study and examine the relationship between Economic Value Added with two parts of shareholders wealth, viz. Earning Per Share and Share Price in stock exchange/ market. Understanding the relationship between two traditional parameters of shareholders wealth creation, viz. Earning Per Share and Share Price in stock exchange/ market and the modern parameter ‘Economic Value Added’. Finally to compare the performance of the companies applying traditional parameters such as Earning Per Share and Share Price in stock exchange/ market with that of ‘Economic Value Added’. Assessing and evaluating that whether there is any significant change in the performance of the companies applying traditional parameters such as Earning Per Share and Share Price in stock exchange/ market with that of Economic Value Added.
It is believed that, the companies have generated higher wealth for their shareholders over a period of time. Generation of higher wealth year after year for their shareholders is ultimate goal of corporate financial management.
 
 


Like it? Share with your friends!

0
BMS Team

We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to [email protected].

4 Comments


Warning: Undefined array key "html5" in /home/bmsnewco/public_html/wp-content/plugins/facebook-comments-plugin/class-frontend.php on line 140

Facebook comments:

This Website Is For Sale. Email us an offer we cannot refuse on [email protected] :)

X
Choose A Format
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Poll
Voting to make decisions or determine opinions
Story
Formatted Text with Embeds and Visuals
List
The Classic Internet Listicles
Countdown
The Classic Internet Countdowns
Open List
Submit your own item and vote up for the best submission
Ranked List
Upvote or downvote to decide the best list item
Meme
Upload your own images to make custom memes
Video
Youtube and Vimeo Embeds
Audio
Soundcloud or Mixcloud Embeds
Image
Photo or GIF
Gif
GIF format