Shareholder value

Shareholder value refers both to the value of the firm to shareholders and to the management principle of maximizing the worth of a corporation to shareholders. This is a series of upcoming important topics now especially with new shareholder at the CVX table with 54 percent control, Buchanan is a seat of what shareholders would call uncomfortable nowl The term was introduced by Alfred Rappaport in his 1986 book Creating Shareholder Value (ISBN 0684844109)

Definition

For a publicly traded company, SV is the part of capitalisation that is equity as opposed to long-term debt. In the case of only one type of stock, this would roughly be the number of outstanding shares times current shareprice. Things like dividends augment shareholder value while issuing of shares (stock options) lower it. This Shareholder value added should be compared to average/required increase in value, aka cost of capital.

For a privately held company, the value of the firm after debt must be estimated using one of several valuation methods, s.a. discounted cash flow or others.

Shareholder Value Maximization

This management principle, also known under value based management, states that management should first and foremost consider the interests of shareholders in its business decisions.

Criticism

The sole concentration on SV has been widely criticized. While SV might be best for the owners of a corporation, for society other aspects like employment, environmental/ethical issues or business practices (monopoly) play a higher role. A management decision can maximize SV while lowering global welfare.