Why do some firms create extraordinary value for shareholders, while others destroy it? A powerful suite of value based management tools can make the difference. Value based management (VBM) refers to tools that financial managers can use to plan, monitor, and control a firm's operations in ways that enhance shareholder value. This timely book-based on the authors' research and on an extensive study of firms that have successfully implemented VBM systems-provides the first objective, field-tested synthesis of the most popular models in use today: the free cash flow method, the economic value added/market value added (EVA/MVA) method, and the cash flow return on investment approach (CFROI). Pointing to lessons learned by VBM adopters in a wide variety of industries, the authors outline the advantages and disadvantages of each model, and guide managers in electing, implementing, and operating one that best fits their organization. At its essence, value based management involves transforming behavior in a way that encourages employees to think and act like owners.
Laying the foundation for building a capital market-focused measurement and reward system that ties employee-level performance to owner-level rewards, this book will help today's leaders establish a continuous cycle of value creation that benefits all stakeholders of a company.
Table of Contents
Introduction to value based management and the imperative for change: what is value based managemnent?; the shareholder revolution and call for change; why the old metrics don't work. Value based management - new tools for measuring and rewarding corporate performance: free cash flow valuation - the foundation of value based management; pick a name, any name - economic profit, residual income, or economic value added; performance evaluation using rates of return; project evaluation using the new metrics; incentive compensation - what you measure and reward gets done!. How well does VBM work?: the empirical evidence - does VBM really work?. Appendix - testing the empirical validity of VBM models: what do VBM adopters have to say?
John D. Martin is Professor of Finance and the Carr P. Collins Chair of Finance at the Hankamer School of Business, Baylor University. J. William Petty is Professor of Finance and the W.W. Caruth Chair of Entrepreneurship at the Hankamer School of Business, Baylor University.