FINANCIAL PERFORMANCE MEASURES AND VALUE CREATION: THE STATE OF THE ART -

The choice of financial performance measures is one of the most critical challenges facing organizations. Performance measurement systems play a key role in developing strategic plans, evaluating the achievement of organizational objectives, and rewarding managers. The measurement of financial performance 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. Hence, value-based metrics were devised that explicitly incorporate the cost of capital into performance calculations. Despite the increasing emphasis on these value-based measures, no definitive evidence exists of which metric works better than others, and research on the extent to which any of them is superior to traditional accounting measures is limited and not yet univocal. In this scenario, the objective of this book is contributing to the ongoing dialogue on the appropriateness of different financial performance measures, by providing a systematic and updated review of the main value-based measures, by highlighting their respective strengths and weaknesses as well as by comparing the main international empirical evidence on their effectiveness. The book can be a powerful tool for guiding managers and graduate students in the “tangled forest” of the existing metrics, by providing them with the quick, but adequate, knowledge and skills for choosing and using these measures, instead of being passively dominated by them.