Friday, February 21, 2020

Main Functional Metrics Employed to Measure ShareHolder Value Essay

Main Functional Metrics Employed to Measure ShareHolder Value - Essay Example Many firms calculate the profitability in their own method of calculation where as investors take a different method to do the same, and it makes a hard time for the management of the firm to coordinate the results. An investor always focuses on the economic profits of the firm as well as looks at the extent of debt and equity that is invested in the business. Some of the important financial metrics employed to measure shareholder value are given below; 1. Shareholder Value Analysis (SVA) The shareholder value analysis (SVA) approach was developed by Alfred Rapport during 1980s and is used to estimate the value of the shareholders’ stake within a company or business unit which can also be adopted as the fundamental measure to formulate and evaluate strategic decisions (CIMA, 2004. p.10). The estimation of the value of a firm’s operations is usually carried out through the process of discounting anticipated future operating â€Å"free cash flows† at a suitable cos t of capital. Here, the free cash flow shows the cash flow derived from a business for a specified period, i.e. the cash flow before extracting any financial-related cash flows associated with share or debt. For the purpose of calculating the shareholder value, the value of â€Å"marketable securities and other investments† must be added to, and the value of debt must be subtracted from the business valuation (CIMA, 2004. p.10). The advantage of shareholder value analysis is that it can be used to value a business, and also to value alternative strategic decisions, by contrasting the pre- and post-strategy positions of the firm. Moreover, it is a simple most common method of calculation by considering the seven key value drivers, which can be broken down into comprehensive practical measures in order to encourage the managers to act on the ultimate objective of generating shareholder wealth. 2. Economic Profit (EV) Economic Profit (EP) is another method for evaluating the sha reholder value which is also known as â€Å"residual income† as a method of measuring divisional performance. It determines how well a firm is performing. The EP evaluates the surplus return gained by the business in a specific period after deducting all expenses, including the cost of using investor’s capital in the business (Encyclopedia of Business, 2011). The measure of net profit cannot be used for analysis even though the interest charged on debt capital is deducted, as its cost related with using equity funds is omitted. So many opt for the EP, arguing that net profit would be mislead and would erroneously exhibit a firm to be profitable based on net profit, where as the actual economic profit would describe it as economically unprofitable. We can state that economic profit is the variance between the return on capital and the cost of capital which can be computed using the following two methods: EP = Invested capital x (return on capital – WACC) EP = Ope rating profits after tax less capital charge 3. Economic Value Added (EVA) According to Bennet and Stewart (p.40, 2007), Economic Value Added is the financial performance evaluation method which is able to accurately capture the true economic profit of an organisation, and is the performance measure most directly associated with the creation of shareholder wealth over time. EVA is an evaluation of finding out

Wednesday, February 5, 2020

Drunk Drivers Should Be Imprisoned on the First Offense Essay

Drunk Drivers Should Be Imprisoned on the First Offense - Essay Example Drunk driving must be dealt with a stern approach and one of the reasons behind dealing with the same is through punishing the first time offenders. This leads to a chaotic situation where imprisonment seems to be the only way forward. Imprisonment is therefore a grave reality which shall open the eyes of the offenders once and for all and it ought to bring solace to the pedestrians and other drivers on the road that have made no mistake to be present there. Moving ahead, it has been seen that drunk driving leads to problems of magnanimous effects as this has been researched upon through studies and evidence that has been discerned to date. Hence imprisonment seems to be the only harsh reality that can dawn upon an individual when he is doing the undoable, i.e. driving whilst being drunk. If the offenders know beforehand that they would be imprisoned for a set duration of time, they would abstain from getting into such realms in the first place. Also it would mean that the people wou ld have little choice than to forego this habit of theirs forever. These offenders would know that if they commit something wrong in the future, they would not be spared and hence their driving license would also be canceled as a result of the same. (Lobmann, 2002) is of the view that they will not be allowed to drive a vehicle until their license gets active again and hence this would serve as a deterrent to curb the menace of drunk driving all over the world. It is understandable that the problems which this individual will face under such realms would be immense but then again these are needed to tackle this issue once and for all. The accidents have increased all over the world. This is because people are in a rush to make it to their desired destinations. Also the fact that drunk driving cases have increased drastically. People just do not care if they have to make it to their destinations while they are in a state of being drunk. What they forget is the fact that drunk driving makes them feel dizzy and drowsy which is indeed quite a problem for the other pedestrians and drivers on the road. The latter feel that they are at the direct mercy of these drunk drivers and that they would have to do it themselves in the case of safety on the road. Wagner (2011) asserts what is even more discouraging is the fact that some people believe in drinking whilst driving which is doubly dangerous for just about everyone. However precautions need to be taken by the authorities to make sure that drunken individuals do not hit the roads. No matter what happens, it would be a good starting point to put them behind bars for a certain amount of time and revoke their licenses to curb this problem once and for all. From a personal example, I have seen cases when drunken individuals have come on to the road and created absolute mayhem. This has meant that they have lost their control completely and hit different vehicles on the road and even the innocent pedestrians. I have seen accidents so severe that I have not been able to sleep properly after that. What is needed however is an understanding that drunk driving is one form of evil that must be avoided as much as possible because it creates trouble for the people on and off the road. The property that is destroyed under such domains is another aspect that needs to be given proper significance as well. In essence, the drunken drivers should be told to spend some time in