Financial Performance Measures and Value Creation: A Review

36 Pages Posted: 28 Nov 2010 Last revised: 9 Dec 2011

See all articles by Daniela Venanzi

Daniela Venanzi

Roma Tre University - Department of Economics

Date Written: December 27, 2010


Corporate financial performance measured in terms of accounting-based ratios has been viewed as inadequate as firms began focusing on shareholder value as the primary long-term objective of the organization. Corporate managers have been facing a period where a new economic framework that better reflects economic value and profitability had to be implemented in their companies. The increased efficiency at the capital markets requires that capital allocation within companies become more efficient: a value based management framework that better reflects opportunities and pitfalls, is therefore necessary. Subsequently, value metrics were devised that explicitly acknowledged that both equity and debt have costs, and thus there was a need to incorporate financing risk-return into performance calculations. The focus of this article is a review of the main value-based measures: the economic value added (EVA), the cash flow return on investment (CFROI) and the shareholder value added (SVA). The objective is contributing to the developing dialogue on the appropriateness of different financial performance measures by reviewing their differences as well as their similarities in terms of measurement, association with market financial performance and DCF approach, implications on managerial incentives, and by highlighting their respective strengths and weaknesses.

This WP is a previous and incomplete version of Venanzi D., Financial performance measures and value creation: the state of the art, SpringerBriefs in Business, Finance & Banking, 2012

Keywords: financial performance, value-based metrics, EVA, CFROI, SVA, residual income

JEL Classification: G30, G31, G39, M10, M41, M52

Suggested Citation

Venanzi, Daniela, Financial Performance Measures and Value Creation: A Review (December 27, 2010). Available at SSRN: or

Daniela Venanzi (Contact Author)

Roma Tre University - Department of Economics ( email )

Via Silvio d'Amico 77
Rome, Rome 00145

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics