Competing Financial Performance Measures

  • Daniela Venanzi
Chapter
Part of the SpringerBriefs in Business book series (BRIEFSBUSINESS)

Abstract

The choice of financial performance measures is one of the most critical challenges facing organizations. Performance measurement systems play a key role in developing strategic plans, evaluating the achievement of organizational objectives, and rewarding managers. The measurement of financial performance in terms of accounting-based ratios has been viewed as inadequate, as firms began focusing on shareholder value as the primary long-term objective of the organization. Hence, value-based metrics were devised that explicitly incorporate the cost of capital into performance calculations. In this chapter, the following value-based measures are discussed, by focusing on their measurement logic: the economic value added (EVA), the cash flow return on investment (CFROI), the shareholder value added (SVA), the economic margin (EM) and the cash flow value added (CVA). The recently emerging emphasis on market value-based measures as the best metrics for value creation is also briefly analyzed.

Keywords

Financial performance measures Discount cash flow (DCF) model Economic value added (EVA) Cash flow return on investment (CFROI) Shareholder value added (SVA) Economic margin (EM) Cash value added (CVA) Residual income (RI) Market value metrics 

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Copyright information

© The Author(s)  2012

Authors and Affiliations

  • Daniela Venanzi
    • 1
  1. 1.Department of Business and LawUniversity of Rome IIIRomeItaly

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