What Is Shareholder Value Added?
Shareholder value added (SVA) is just one way of measuring what a company stock is generally worth to shareholders, or how it is likely to compensate those who invest money into it. In SVA, finance pros take the net operating profit after tax (NOPAT), and subtract the cost of equity. This helps to show a “value” for the company, albeit a somewhat subjective one. It can seem complicated, but the basic idea behind SVA is this: that for a company to truly provide for its stockholders, equity returns (profits) have to exceed equity costs, the total value of outstanding shares. The story on shareholder value added is that General Electric’s Jack Welch helped to popularize the idea before later abandoning it. Some financial experts may hold a shareholder value added value system in high esteem; others may not. The SVA is just a general value measurement that can help to show how equity is balanced against real profits from a company.
