value driver


value driver
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
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.

Accounting dictionary. 2014.

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