This article outlines the requirements for a system of metrics and then reviews some of the current contenders, including net present value (NPV), shareholder value analysis (SVA), economic value added (EVA), and cash flow return on investment (CFROI). We therefore require a wealth metric for measuring shareholder value, and a performance metric to use for target setting. This raises two key questions – how can we measure whether shareholder value is being created or destroyed, and which performance appraisal targets ensure that managers act in such a way as to generate shareholder value? The principal objective of financial management is to maximise shareholder wealth.
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