Many corporate executives still focus on quarterly
earnings figures as a key driver of stock market values.
Although no-one can discount the importance of quarterly
earnings numbers or the impact on the stock market of
earnings surprises, they are not the fundamental driver.
Stock market values are driven by real corporate
performance, as compared to market benchmarks. The key
relationship is whether the money entrusted to corporate
management earns a higher return than the owners can get
elsewhere. Focussing on this key relationship
differentiates the value manager from other managerial
styles. Implementing a “value managerial” system can be
accomplished by two main metrics: a sales, operating
margin, turnover metric and a more traditional return on
investment, reinvestment rate metric. Both metrics are
simply ways of expressing the underlying determinants of
market value. The most critical decision facing a firm
is whether to adopt a value based managerial system
rather than a particular set of decision tools. pdf
