Value-based management
Value-based management steers planning, performance measurement and pay around long-run owner value, typically using residual-income-style metrics such as EVA, rather than short-run accounting profit.
What it is
See it move
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Two divisions both report €2.0m of operating profit. Division A uses €8m of capital at 12%, a charge of €0.96m, giving residual income of €1.04m. Division B uses €20m of capital at the same 12%, a charge of €2.4m, giving residual income of −€0.4m — value destroyed despite equal profit.