Overview

value driver


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Any variable that significantly affects the value of an organization. In his development of shareholder value analysis, Alfred Rappaport identified seven key drivers of value: sales growth rate operating profit margin tax rate fixed capital investment working capital investment planning period cost of capital

sales growth rate

operating profit margin

tax rate

fixed capital investment

working capital investment

planning period

cost of capital

Of these, the first five can be used to forecast the future cash flows of a business, whereas the remaining two can be used to calculate the present value of these cash flows.

In practice, different companies will have different value drivers. For example, Sony is a company that produces high-quality products for which customers are prepared to pay a relatively high price. Maintaining a high operating profit margin is therefore more important for Sony than sales growth. For another company, however, sales growth may well be the more important factor.

Subjects: Accounting.


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