Accounting for Managers: Interpreting accounting information for decision-making

ACCOUNTING AND ITS RELATIONSHIP TO SHAREHOLDER VALUE 15

Shareholders Financiers

invest in shares lend money

to earn dividends

and sell for higher price

for security,

to earn interest

to a Limited Company (Ltd or PLC)

Shares (equity) Borrowings (debt)

Annual

general

meeting

Board of

directors

Company

law

Stock

exchange

Management Annual report and accounts

Product market Capital market

Decisions about shareholder value

Figure 2.1 Capital and product market structure and interaction

include total shareholder return, marketvalue added, shareholder value added and
economic value added. Recent research into the use of value-based management
approaches by UK companies is covered by Cooperet al.(2001).
Total shareholder return (TSR)compares the dividends received by shareholders
and the increase in the share price with the original shareholder investment,
expressing the TSR as a percentage of the initial investment.
Market value added (MVA)is the difference between total market capitalization
(number of shares issued times share price plus the market value of debt) and
the total capital invested in the business by debt and equity providers. This is a
measure of the value generated by managers for shareholders.