c

International Accounting and Finance

Creating and Measuring Shareholder Value
A PROJECT REPORT
Under the guidance Of Mr. AHMAD NASIM ATHAR
Submitted by
PANKAJ KUMAR SINGH
ROLL NO. 520917118
To
WEB UNIV (00964)
SOUTH EX, NEW DELHI
In partial fulfillment o f the requirement
For the award of the degree

Of
MBA
IN
Finance

<JUNE> & <2011>

ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and
supported me during the writing of this book.
My deepest thanks to Lecturer, Mr. AHMAD NASIM ATHAR the
Guide of the project for guiding and correcting various documents of
mine with attention and care. He has taken pain to go through the
project and make necessary correction as and when needed.
I express my thanks to the Principal of, WEB UNIV, SOUTH- EX, NEW
DELHI, for extending his support.

My deep sense of gratitude to MR. HIMANSHU JAIN, DIRECTOR,

VOLVO GROUPS support and guidance. Thanks and appreciation to
the helpful people at International Accounting and Finance, Creating
and Measuring Shareholder Value: for their support.
I would also thank my Institution and my faculty members without
whom
this project would have been a distant reality. I also extend my heartfelt
thanks to
my family and well wishers.

BONAFIDE CERTIFICATE

BONAFIDE CERTIFICATE

Certified that this project report title International Accounting and

Finance Creating and Measuring Shareholder Value, is the bonafide
work of PANKAJ KUMAR SINGH who carried out the project work
under my supervision.

SIGNATURE OF STUDENT

SIGNATURE OF FACULTY/ GUIDE

PANKAJ KUMAR SINGH

ROLL NO. 520917118
WEB UNIV, SOUTH EX.( 00964)
NEW DELHI

Mr. AHMAD NASIM ATHAR

Finance Department
WEB UNIV, SOUTH EX.
NEW DELHI

c



c



c
c


cc

c
c
c cc
c
c


c
This thesis is a culmination of our study at Integrated Master Program- Accounting and
Finance. We finally carried out this project but it would have been very difficult without
the help and support of many people in our surroundings.
We sincerely express our gratitude to our tutor, Jan Marton, for his advice, guidance and
support throughout this thesis writing. We would like to thank our interviewees: KarlHenrik Lindgren (Electrolux), Marita Bjrk (SKF), Lotta Treschow (SEB), Fredrik Hjelm
(Volvo Group), Bo Gustavsson (Volvo Group), Hans Bertus (Bilia), Staffan Saln
(Freningssparbanken), Johan Karlsson (ABB), for their participation.
Our sincere thanks go to the Accounting and Finance program coordinator, Professor
Ulla Trnqvist and to all the Lecturers for their efforts in realization of this program. We
would like to thank Ann McKinnon for the support during the whole master program.
Beatrice Nyiramahoro would like to thank her husband, Aaron Ndagijimana and her son,
Alan Ndagijimana for their patience, encouragement and moral support.
We express our thanks to all who contributed in one way or another to the realization of
this work. Above all, we would like to thank each other for a good teamwork. Beatrice
Nyiramahoro Natalia Shooshina
II


c
To measure shareholder value creation has been the issue of discussion all around the
world. It has become crucial since the companies were increasingly committing to
creating shareholder value. Old traditional measures are criticised for having low
correlation with shareholder value creation. Therefore, new valuation methods are needed
to measure the shareholder value creation.
However, the changing process from the traditional methods to the new ones is not easily
welcomed. How then shareholder value creation is measured nowadays is of crucial
importance. In order to address this issue, the thesis presents in a general way how
shareholder value is created as a background to the valuation methods being used for
shareholder value creation measurement. The empirical part of the study showed that
although the companies in this study have implemented many ways to create shareholder
value, little effort is being made to measure it since the majority of them are still using
the traditional accounting measures. The reasons for this may be conservatism and lack of
pressure from both the stock market and shareholders. Having noticed this we then
recommended the companies to use value based methods when measuring shareholder
value creation since they are more reliable. Key words: Shareholder Value, Value
Creation, Value Based Management,

III

cc

c



c!c
1.1 BACKGROUND ............................................................................................................. 1
1.2 RESEARCH ISSUE ................................................................................................. ........ 3
1.3 OBJECTIVE OF THE STUDY ............................................................................................. 3
1.4 SCOPE AND LIMITATIONS............................................................................................... 3
1.5 CHAPTER LAYOUT ........................................................................................................ 4
"c  #c
#
c$c
2.1 RESEARCH APPROACH ......................................................................... ........................ 5
2.2 POSITIVISTIC AND HERMENEUTIC PERSPECTIVE ............................................................... 5
2.3 QUANTITATIVE OR QUALITATIVE METHODS............................................ ....................... 5
2.4 DATA COLLECTION.................................................................................. ...................... 6
h
 

 


h
h   


2.5 SAMPLE OF STUDY COMPANIES........................................................................ ..............9
2.6 RESEARCH EVALUATION................................................................................................ 11
h    


h  h  
 h
2.7 SUMMARY ..................................................................................................................... 12
3c
# 
 c %
c
c!"c
3.1 CREATING SHAREHOLDER VALUE.............................................................................. .... 12
3  
    

h
3  h   

 3
3  3! 
 "


3 
 

 #
3  #$  
 
 
3  %  
  
 
 
3      

 &
3.1.7.1 Excellence in operations.............................................................................
.... 18
3.1.7.2 Getting the financial structure right..............................................................
.. 18
3.1.7.3 Being focused ................................................................................................
. 19
3.1.7.4 Credible earning growth..............................................................................
... 19
3.1.7.5 Information ..................................................................................................
... 20
3.1.7.6 Stock repurchase...........................................................................................
.. 20
3  &!  
$"
 h
3  ' 
( )  *
 hh
3.2 SHAREHOLDER VALUE CREATION HOW TO MEASURE IT? ........................................... . 24
3 h 
 
 h

3 h h+    
* 
,
 *
 h#
3.2.2.1 EPS Earnings Per Share ..............................................................................
25
3.2.2.2 ROI: Return On Investment.......................................................................
..... 25
3.2.2.3 ROE Return On Equity...................................................................
............ 26
3 h 3  
,$     

h
3.2.3.1 TSR - Total Shareholder Return...................................................
.. ............... 27
3.2.3.2 EVA Economic Value Added .....................................................................
28
3.2.3.3 MVA Market Value Added.........................................................................
30
IV
3.2.3.4 CVA Cash Value Added ............................................................
.............. 32

3.2.3.5 CVA developed by the Boston Consulting group........................................ . 32

3.2.3.6 DCF Discounted Cash Flow........................................................................ 33
3.2.3.7 CFROI Cash Flow Return On Investments.............................................. 33
3.2.3.8 Q ratios ......................................................................................................... 34
3.2.3.9 The comparison of the new measures ........................................................... 34
3.3 THE PARTICULARS OF THE APPLICATION OF THE SHAREHOLDER VALUE MEASURES IN
SWEDEN ......................................................................................................... ........... 37
'c
 c
 c
cc
4.1 CREATING SHAREHOLDER VALUE............................................................................ 37

     

3

 h $ 


-

 3!
$    





!  
  "  .

h

 #!  
 *


h

  
/   *

3
4.2 MEASURING SHAREHOLDER VALUE CREATION........................................................ 44

h  
)

#

h h  



h 30 
*  




h
1 
  
 

&

h #2  * *  

'

h 0   


'
$c  & 
$'c
5.1 THE SHAREHOLDER VALUE CREATION....................................................................... 50
#      

#-
#  h $ 
 
#3
#  3!

$    

#

# 
!  
   "  .
##
#  #!  
 *
 
#
#   
/   *
#
5.2 MEASURING SHAREHOLDER VALUE..............................................................................58
# h 2   

#&
# h h 
h
# h 30 
*  
 
h
# h
1 
  

3
# h #2  * * 
 
3
# h 0   



5.3 A COMPARISON BETWEEN THE EMPIRICAL FINDINGS AND THEORETICAL FRAMEWORK 65
c c c 
c
c
 
c  c
 (c! c
)!c
 (c"c
)!c
 (c3 c
c)"c

c
c