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Value-based management |
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Definition of Value-based managementValue-based managementA variety of approaches that emphasize increasing shareholder value as the primary goal of every business.
Related Terms:NPV (net present value of cash flows)Same as PV, but usually includes a subtraction for an initial cash outlay. PV (present value of cash flows)the value in today’s dollars of cash flows that occur in different time periods. Adjusted present value (APV)The net present value analysis of an asset if financed solely by equity Asset/liability managementAlso called surplus management, the task of managing funds of a financial Asset-based financingMethods of financing in which lenders and equity investors look principally to the Bond valueWith respect to convertible bonds, the value the security would have if it were not convertible Book valueA company's book value is its total assets minus intangible assets and liabilities, such as debt. A Book value per shareThe ratio of stockholder equity to the average number of common shares. Book value Bottom-up equity management styleA management style that de-emphasizes the significance of economic Carrying valueBook value. Cash management billVery short maturity bills that the Treasury occasionally sells because its cash Cash-surrender valueAn amount the insurance company will pay if the policyholder ends a whole life Conversion valueAlso called parity value, the value of a convertible security if it is converted immediately. Corporate financial managementThe application of financial principals within a corporation to create and Exercise valueThe amount of advantage over a current market transaction provided by an in-the-money Expected valueThe weighted average of a probability distribution. Expected value of perfect informationThe expected value if the future uncertain outcomes could be known Extraordinary positive valueA positive net present value. Face valueSee: Par value. Firm's net value of debtTotal firm value minus total firm debt. Future valueThe amount of cash at a specified date in the future that is equivalent in value to a specified Intrinsic value of an optionThe amount by which an option is in-the-money. An option which is not in-themoney Intrinsic value of a firmThe present value of a firm's expected future net cash flows discounted by the Investment valueRelated:straight value. Liquidation valueNet amount that could be realized by selling the assets of a firm after paying the debt. Loan valueThe amount a policyholder may borrow against a whole life insurance policy at the interest rate Management/closely held sharesPercentage of shares held by persons closely related to a company, as Management buyout (MBO)Leveraged buyout whereby the acquiring group is led by the firm's management. Management feeAn investment advisory fee charged by the financial advisor to a fund based on the fund's Market value1) The price at which a security is trading and could presumably be purchased or sold. Market value ratiosRatios that relate the market price of the firm's common stock to selected financial Market value-weighted indexAn index of a group of securities computed by calculating a weighted average Maturity valueRelated: par value. Money managementRelated: Investment management. Net adjusted present valueThe adjusted present value minus the initial cost of an investment. Net asset value (NAV)The value of a fund's investments. For a mutual fund, the net asset value per share Net book valueThe current book value of an asset or liability; that is, its original book value net of any Net present value (NPV)The present value of the expected future cash flows minus the cost. Net present value of growth opportunitiesA model valuing a firm in which net present value of new Net present value of future investmentsThe present value of the total sum of NPVs expected to result from Net present value ruleAn investment is worth making if it has a positive NPV. Projects with negative NPVs Net salvage valueThe after-tax net cash flow for terminating the project. Original face valueThe principal amount of the mortgage as of its issue date. Par valueAlso called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date. Parity valueRelated:conversion value Passive investment managementBuying a well-diversified portfolio to represent a broad-based market Portfolio managementRelated: Investment management Present valueThe amount of cash today that is equivalent in value to a payment, or to a stream of payments, Present value factorFactor used to calculate an estimate of the present value of an amount to be received in Present value of growth opportunities (NPV)Net present value of investments the firm is expected to make Price value of a basis point (PVBP)Also called the dollar value of a basis point, a measure of the change in Relative valueThe attractiveness measured in terms of risk, liquidity, and return of one instrument relative to Replacement valueCurrent cost of replacing the firm's assets. Residual valueUsually refers to the value of a lessor's property at the time the lease expires. Risk managementThe process of identifying and evaluating risks and selecting and managing techniques to Salvage valueScrap value of plant and equipment. Standardized valueAlso called the normal deviate, the distance of one data point from the mean, divided by Straight valueAlso called investment value, the value of a convertible security without the con-version option. Surplus managementRelated: asset management Terminal valueThe value of a bond at maturity, typically its par value, or the value of an asset (or an entire Time value of an optionThe portion of an option's premium that is based on the amount of time remaining Time value of moneyThe idea that a dollar today is worth more than a dollar in the future, because the dollar Top-down equity management styleA management style that begins with an assessment of the overall Utility valueThe welfare a given investor assigns to an investment with a particular return and risk. Value-added taxMethod of indirect taxation whereby a tax is levied at each stage of production on the value Value-at-Risk model (VAR)Procedure for estimating the probability of portfolio losses exceeding some Value additivity principalPrevails when the value of a whole group of assets exactly equals the sum of the Value dateIn the market for Eurodollar deposits and foreign exchange, value date refers to the delivery date Value datingRefers to when value or credit is given for funds transferred between banks. Value managerA manager who seeks to buy stocks that are at a discount to their "fair value" and sell them at Working capital managementThe management of current assets and current liabilities to maximize shortterm liquidity. BOOK VALUEAn asset’s cost basis minus accumulated depreciation. BOOK VALUE OF COMMON STOCKThe theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. Book value equals: CAPITAL IN EXCESS OF PAR VALUEWhat a company collected when it sold stock for more than the par value per share. PAR VALUEAn arbitrary value that a company may assign to its stock. Par value has no relationship to what the stock is selling for on the open market. SALVAGE VALUEThe amount management estimates a piece of equipment will be worth at the end of its useful life, either as a trade-in or if it were sold for scrap. Activity-based budgetingA method of budgeting that develops budgets based on expected activities and cost drivers – see also activity-based costing. Activity-based costingA method of costing that uses cost pools to accumulate the cost of significant business activities and then assigns the costs from the cost pools to products or services based on cost drivers. Cash value added (CVA)A method of investment appraisal that calculates the ratio of the net present value of an Economic Value Added (EVA)Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge Management accountingThe production of financial and non-financial information used in planning for the future; making decisions about products, services, prices and what costs to incur; and ensuring that plans are implemented and achieved. Net present value (NPV)A discounted cash flow technique used for investment appraisal that calculates the present value of future cash flows and deducts the initial capital investment. Priority-based budgetA budget that allocates funds in line with strategies. Shareholder valueIncreasing the value of the business to its shareholders, achieved through a combination of Strategic management accountingThe provision and analysis of management accounting data about a business and its competitors, which is of use in the development and monitoring of strategy (Simmonds). Zero-based budgetingA method of budgeting that ignores historical budgetary allocations and identifies the costs that are necessary to implement agreed strategies. No par value stockStock issued by the company that does not have an arbitrary value (par value) assigned to it. Par valueAn arbitrary value assigned by the company to each share of stock; it is used in the accounting for the sale of stock and in some jurisdictions for calculating taxes. Stated value stockStock issued by the company that does not have a par value, but does have a stated value. For accounting purposes, stated value is functionally equivalent to par value. activity based costing (ABC)A relatively new method advocated for the book value and book value per shareGenerally speaking, these terms management controlThis is difficult to define in a few words—indeed, an net present value (NPV)Equals the present value (PV) of a capital investment present value (PV)This amount is calculated by discounting the future Book ValueThe value of an asset as carried on the balance sheet of a Book Value per ShareThe book value of a company divided by the number of shares Expected ValueThe value of the possible outcomes of a variable weighted by the Face ValueThe nominal value of a security. Also called the par value. Future ValueThe amount a given payment, or series of payments, will be worth
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