Shareholder value and Structural subordination: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Add link.)
 
imported>Administrator
(CSV import)
 
Line 1: Line 1:
Literally, the value accruing to shareholders.
''Risk management''.
An effective reduction in the ranking of the claim of a lender or other creditor resulting from a combination of:
(1) The ownership structure of the borrower, for example in a group of companies; and
(2) Holding a claim against the 'wrong' legal entity.


For example, the claims of the creditors of a holding company may become structurally subordinated to the claims of creditors of the subsidiary companies in the same group.  This is because the claim of the holding company itself - as a shareholder of the subsidiary - is generally subordinated to the claims of the other creditors of the subsidiary.


Shareholder value calculations take account of:
This can be particularly problematic where the subsidiary is in a different country from the holding company, where local legal and other claims may effectively erode the position of the holding company's creditors.
 
(i) The market value of shares;
 
(ii) Dividends paid out to the shareholders;
 
(iii) Capital introduced by the shareholders; and
 
(iv) Capital returned to the shareholders.
 
 
Often the term is used qualitatively to describe the general trend away from focusing on accounts-related measures of performance and towards economic value-based measures of performance.
 
Shareholder value management emphasises the consequences of management decision-making in terms of resulting market values rather than in terms of purely accounting based measures such as accounting profits or earnings per share.
 
 
In simple terms, shareholder value is added or created when the Internal rate of return from the firm's investment projects exceeds the appropriately risk-adjusted Weighted average cost of capital.
 


== See also ==
== See also ==
* [[Corporate finance]]
* [[Subordination]]
* [[Corporate value]]
* [[Cost of capital]]
* [[Dilution]]
* [[Earnings per share]]
* [[Economic value added]]
* [[Internal rate of return]]
* [[Market value]]
* [[Market value added]]
* [[Metric]]
* [[Multiples valuation]]
* [[Shareholder value analysis]]
* [[Value driver]]
* [[Weighted average cost of capital]]


[[Category:Corporate_finance]]

Revision as of 14:20, 23 October 2012

Risk management. An effective reduction in the ranking of the claim of a lender or other creditor resulting from a combination of: (1) The ownership structure of the borrower, for example in a group of companies; and (2) Holding a claim against the 'wrong' legal entity.

For example, the claims of the creditors of a holding company may become structurally subordinated to the claims of creditors of the subsidiary companies in the same group. This is because the claim of the holding company itself - as a shareholder of the subsidiary - is generally subordinated to the claims of the other creditors of the subsidiary.

This can be particularly problematic where the subsidiary is in a different country from the holding company, where local legal and other claims may effectively erode the position of the holding company's creditors.

See also


Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Shareholder_value&oldid=45647’