- Who can make the demands on the company
- –Why ROI and Share Holder Value Program
- –Why new Financial Ratios?
- –Owners/share holders need: dividend 200*0.1 => 20 Eur
- –Lenders e.g. banks need interest => 50 Eur
- –Company itself, retained earnings => 20 Eur (need for R&D expenses 5-6% e.g. in car industry)
- Tax authority, income tax 60% => 60 Eur
Grand total: 150 Eur
Total shareholder return target
- Interest rate for long term government bonds => 3%
- Equity risk premium => 8%
REQUIRED SHAREHOLDER RETURN 11 %
11% to be achieved by (e.g.)
4 % Dividens
7 % Share Price increase
Necessary profit is
based on ROI targets
i.e. 15 %!!!
Probable sales
./.Necessary profit
= Allowable cost