The Role of the Concept of Shareholder Value in the Context of Value Based Corporate Management

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The Role of the Concept of Shareholder Value in the Context of Value Based Corporate Management

  1. 1. The RoleoftheConceptof Shareholder Value in theContextof Value Based Corporate Management<br />Dr. Dieter Weinmann<br />Heidelberg, 19.03.2010<br />
  2. 2. Agenda<br />The Conceptof Shareholder Value<br />Value BasedCoporate Management<br />Shareholder Value ConceptandValue Based Management<br />2<br />Dieter Weinmann<br />
  3. 3. Agenda<br />The Conceptof Shareholder Value<br />Value BasedCoporate Management<br />Shareholder Value ConceptandValue Based Management<br />3<br />Dieter Weinmann<br />
  4. 4. Shareholder Value - I<br />Is an indicatorfor all futurepaymentsof a companyinvestment<br />Is the Value ofonesharemultipliedwiththeamountofshares<br />Is the Value ofthe Company<br />Are theexpecteddividendsofthecompanyfor all shares<br />4<br />Dieter Weinmann<br />
  5. 5. Shareholder Value - II<br />Ifcapitalmarketsareefficient, Investors chooseeitherthoseshares, thatprovidethehighestreturnwhenhavingthe same riskclassorthoseshares, thatprovidethelowestriskwhenhavingthe same return rate.<br />So itisclear, that an investorchoosesthoseshares, fromwhichthehighestaccumulatedpayments in thefuturecanbeexpected.<br />5<br />Dieter Weinmann<br />
  6. 6. Shareholder Value III(Alfred Rappaport, 1995)<br />Dieter Weinmann<br />6<br />Gaining Value/ Shareholder Value<br />Internal/ external Share-Stakeholder Value benefit<br />Target<br />Net Cash-Flow<br />Discount Rate<br />Capital structure<br />Valuation Field<br />Capital Costs<br />Capital assets<br />Sales growth, Profit margin,<br />Tax Rate<br />Prognosis horizon<br />Value Generator<br />Business internal/ external<br />Investments<br />Financing<br />SteeringPossibilities<br />
  7. 7. Agenda<br />The Conceptof Shareholder Value<br />Value BasedCoporate Management<br />Shareholder Value ConceptandValue Based Management<br />7<br />Dieter Weinmann<br />
  8. 8. Value BasedCoporate ManagementStakeholder<br />The Stakeholderof a companyarethe Management andtheinvestors/capitalprovider<br />In thepasttheexternalshareholders/ stakeholderswantedthemanagmenttomaximizethesharevalue<br />8<br />Dieter Weinmann<br />
  9. 9. Value BasedCoporate ManagementMotivation ofthe Management<br />The Owner(-Group) of a companyisinterested in keepingthecompanyalive<br />Ifpaidwith a fix salary, theManagement isinterested in satisfyingtheirownprefences, but theownersareinterested in maximizingtheprofit<br /> Principal-Agent-Theory<br />9<br />Dieter Weinmann<br />
  10. 10. Principal-Agent-Theory<br />Ownership and Management isseparated<br />Owner(-Group) is/arethePrincipal<br />Management isthe Agent<br />Usuallythe Agent has an Information-Advantage, because he/shehas a deeperinsightintothecompany<br />Becauseeverybodymaximizeshis/her ownutility, itislikely, thattheagentactsagainsttheinterestsofthePrincipal<br /> Thisiscalled „Moral Hazard“<br />10<br />Dieter Weinmann<br />
  11. 11. Value Analysis for Corporate Restructuring<br />Dieter Weinmann<br />11<br />0,5<br />-1<br />3<br />2,5<br />
  12. 12. Agenda<br />The Conceptof Shareholder Value<br />Value BasedCoporate Management<br />Shareholder Value ConceptandValue Based Management<br />12<br />Dieter Weinmann<br />
  13. 13. Shareholder Value ConceptandValue based Corporate Management <br />Separating Enterprise Value and Shareholder Value:<br />Forinternalcalculationofthe Enterprise Value, thereismuchmoreinformationavailablethanatthe stock marketforthe shareholder value.<br /> Oftendifferencesbetweeninternalcalculatedvalueand stock marketvalue<br />13<br />Dieter Weinmann<br />
  14. 14. CriticsfortheConceptofthe Shareholder Value:<br />Methodical:<br /><ul><li>Itis not possibletodetermineexactlythe Enterprise Value and Shareholder Value includingthecapitalcosts, becausethecapitalmarketisinefficient
  15. 15. Problems withthe Motivation forthe Management (Agent), toactliketheownerswouldlikethemto</li></ul>14<br />Dieter Weinmann<br />
  16. 16. CriticsfortheConceptofthe Shareholder Value:<br /><ul><li>The success-values in accountingcanbemanipulated in severalways (e.g. forcompany-politicalreasons forgetting a loanorforgetting a goodposition in a companyranking, etc.)
  17. 17. The traditional Market Value Methodsexpect, thatthepaymentsofthepast, also last in thefutureand do not considertheenvironmentanddevelopmentofthecompany, whichcouldleadtootherpayments</li></ul>15<br />Dieter Weinmann<br />
  18. 18. ConclusionPro Shareholder Value:<br />SV is a goodtoolforevaluatingstrategies<br />Prerequisites:<br />Righttointeractof Shareholders<br />Rightforinformationof Shareholders<br />Salaryfor Managers correlatedto SV<br />Organizational Model hastobecompatible<br />16<br />Dieter Weinmann<br />
  19. 19. ConclusionCon Shareholder Value:<br />The Conceptofthe Shareholder Value is not abletopaint a completepictureof a company<br />SV fostersshort-termthinking<br />SV destroystheconsensusbetween Management andEmployees<br />QuotingRappaport, SV isforlong-termstrategies<br />Investments areoftenpaying off in thelongrun, but thenthemanagementhasalreadychanged<br />17<br />Dieter Weinmann<br />
  20. 20. Thankyou<br />forYour Attention!<br />18<br />Dieter Weinmann<br />
  21. 21. BackUp<br />Dieter Weinmann<br />19<br />
  22. 22. Determination-problemsofthe Shareholder Value – I<br /><ul><li>everyfuture-prognosisisunsecure
  23. 23. uncertaintyincreases, withtheamountof time
  24. 24. „constant-growth-model“ is also not realistic</li></ul>20<br />Dieter Weinmann<br />… ??<br />today<br />
  25. 25. Determination-problemsofthe Shareholder Value – II<br /><ul><li>In theConceptofthe Shareholder Value, onlythemaximizationofpaymentsisconsidered.
  26. 26. Values thataren‘tquantifiable, aren‘tconsideredat all</li></ul>21<br />Dieter Weinmann<br />
  27. 27. Shareholder Value ConceptandValue based Corporate Management <br />Managers aremostlypaid in relationtothe shareholder value.<br />Whatconsequencesaretobeexpected?<br />Goodorbad?<br />22<br />Dieter Weinmann<br />
  28. 28. Shareholder Value - II<br />Shareholder Value = Total Company Value – Value ofexternalcapital<br />Dividend Discount Model (DDM):<br /> = Present Value, Market Value<br /> = Discount Percentage<br /> = Dividend in period t (including Liquidation in period T)<br />23<br />Dieter Weinmann<br />
  29. 29. Shareholder Value - III<br />Easy calculationofthe Market Value<br />withthe model of Gomez and Weber:<br />Calculatingwiththe „never-ending“ Operating Free Cash-Flow (OFCF):<br /> = never-ending Operating Free Cash-flow<br /> = Discount Percentage<br />24<br />Dieter Weinmann<br />
  30. 30. Shareholder Value - IV<br />Operation Free Cash Flow:<br />Operating Profit<br />+ writedowns<br />+ Increasementofreserves<br />= Operating Cash-flowbeforetaxes (EBIT)<br /><ul><li>Income-Tax</li></ul>= Operating Cash-Flow after taxes<br /><ul><li>Increasementofworkingcapital
  31. 31. Netto-investments in assets</li></ul>= Operating Free Cash Flow<br />25<br />Dieter Weinmann<br />

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