finance week 13
Azooz1_A
Chapter12powerpoint.pptxChapter 12 – Creating Value and Rewarding Value Creation
Dr. David M Piper
Chapter 12
Chapter 12 highlights some important concepts as we close our work on this course
Aligning pay with performance
Chief among them is the need to align compensation plans to measurable levels of performance
Most profit seeking companies do this
Most unionized employers do not have the ability to do this
Government organization have do not compensate based on performance
Chapter 12
Other measures to determine if the number of employees if helping or hindering performance
EBIT per employee
Earnings before income taxes divided by the number of employees
A organization would want to track this over the years.
Basically the model will tell you how much money is generated by the number of employees.
The models works if, when you add employees, the value per employee continues to rise. If the value falls as you add employees, then the additional employees are not needed – they are not providing enough service to warrant their employment
Chapter 12
Economic Value Added (EVA)
This measure if the firms after tax operating profit, minus the cost of financing the assets.
So if it costs a firm $20 million dollars to finance the assets needed to produce a profit, then a firms has no economic value added until they reach $20 million plus 1 dollar.
Chapter 12
Another main source of ratios that all publicly traded corporations use is Earning per Share (EPS)
This value is calculated simply by taking the end earning of the company, the profit (either before or usually after taxes) and divide by the number of shares outstanding
This EPS, is the basis by which all dividends are paid to investors
This tells the true value and performance of a company.
Most companies will decide to “retain some earnings” called retained earnings – to invest into future assets that will help the company perform
Chapter 12
Most publicly traded corporations will have Earning Per Share targets placed on them. These are assumptions about the performance of the company over the next year
If the company performs better than the EPS estimate, stock prices will rise, investor value of shares will rise, and more folks will likely buy their stock
If the company performs worse than the EPS estimate, the stock prices will drop, people then will likely look to sell the stock and the investors share of the stock will go down.
Chapter 12
Human Resource practices. – the lynchpin to successful organization
Hiring the right people and using the right compensation package that aligns with the mission of the organization is critical
Tesla – you are going to need top engineers to pull off this car- that means pay higher rates to find the best engineers
Walmart – sell goods less than anyone else can – that means finding good workers at low costs, to keep overhead down.
IUP – find better than average professors that have the experience and background to teach good HR practices for less than they would make at larger institutions like Cornell and Penn State
