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

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

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