Measuring Shareholder Value Term Paper Example | Topics and Well Written Essays - 1250 words

Measuring Shareholder Value - Term Paper Example Capital gain is the gain that if gotten above an assets original buying price upon disposal. Any realized capital gain forms an investment that has been disposed of as at a profit. An unrealized capital gain may, on the other hand, refer to an investment which is yet to be disposed of but would lead to a profit if it was disposed of. Assets that can realize capital gains may include options, bonds, shares/stock, or businesses. A buyback kind of program involves a situation where a company repurchases its bond or stock that it had issued previously. In that case, the amount of stock that is outstanding reduces and this gives the shareholders that are remaining a bigger ownership stake of that company in the process. (investorwords.com, 2011) Investors in the world over have gotten more informed and, thus, if they have made an investment in a stock and that stock has proven not of much return as they would have wanted, then, they are unlikely to continue holding on to that stock. Thus, this escalated demand for shareholder value has led to a lot of pressure upon finance managers of various organizations. They have to ensure that the companies are earning reasonable profits and besides that, they have to come up with a very appropriate measure to shareholder value. This way, shareholders can monitor the performance of their investments. The task of getting the befitting measure for that can be an uphill one to most managers. In recent times executives have adopted numerous metrics to determine shareholder value and these are with the inclusion of cash flows, operating profits, economic performance, and return on assets. All of these metrics can be applied one at a time or all of them in entirety instantaneously. In the recent past, another metric was introduced by Stern Stewart and Company and this metric was known as EVA (Economic Value Added). EVA is said to evaluate shareholder value through computing the magnitude by which profits surpass the given companyâ₠¬â„¢s cost of capital.           Ã‚