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Creating Shareholder Value: A Guide for Managers and Investors Hardcover – December 1, 1997

4.6 out of 5 stars 14 customer reviews

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Editorial Reviews

Amazon.com Review

Should a company's management be most accountable to employees, customers, or management itself? In Creating Shareholder Value, Alfred Rappaport argues that management's primary responsibility is to company shareholders. First published 12 years ago, the ideas put forth by Rappaport have since become commonplace in companies around the world.

Rappaport eschews the most common measures of a company's performance, such as price-to-earnings ratios ("Cash is a fact, profit is an opinion"), return on investment, and equity measures, instead concentrating on developing a shareholder value approach that measures "value drivers" such as sales-growth rates, operating profit margins, and cost of capital. This revised and updated edition addresses the issues of corporate downsizing and the social responsibilities of business. It also includes new sections on the value of mergers and acquisitions and how to implement a shareholder value system. Both managers and investors alike will find this book useful.

Review

Alan Shapiro Ivadelle and Theodore Johnson Professor of Banking and Finance, Graduate School of Business Administration, University of Southern California Al Rappaport lives up to his reputation as the father of shareholder value. This book is an invaluable resource for anyone committed to creating shareholder value or teaching about it. Creating Shareholder Value presents not just the basic principles and theoretical underpinnings of its subject matter but also their application through numerous well-chosen and up-to-date real-world examples.

Michael J. Mauboussin Managing Director, Equity Research, Credit Suisse First Boston Corporation Herein lie the power tools of any investor's toolbox. This significant update to the seminal Creating Shareholder Value offers investors and corporate managers a theoretically sound and practically usable guide for decision making. Business people who have been jostled by the latest management fads and buzzwords will find refuge in Rappaport's well-conceived and effective framework.

Harry M. Jansen Kraemer, Jr. President, Baxter International, Inc Dr. Rappaport does a phenomenal job of bridging the gap between shareholder value theory and practice. I highly recommend Creating Shareholder Value for CEOs, CFOs, business school students and anyone who wants to truly understand as well as create shareholder value.

Stephen F. Bollenbach President and CEO, Hilton Hotels Corporation Updates all of us on the front lines with the latest thinking about creating shareholder value—from the social aspects to the very specific. I recommend this book to any person seriously concerned about the function of a corporation in a market economy.

Martin L. Leibowitz, Vice Chairman and Chief Investment Officer, TIAA-CREF Rappaport's work shines a bright light on how to systematically apply fiancial theory to the pratical problems of corporate valuation. The distinction Rappaport makes between shareholder return and corporate return is particularly critical in today's markets. Every serious ananlyst should have a firm understanding of his writings.

Charles W. McCall President and CEO, HBO & Company I've had the pleasure of following Al Rappaport's work for over 20 years and I feel this is his best work ever. The insights on acquisitions and the work on performance measurements are very important for fast-growing companies. Al's principles have helped us grow from a market value of less than $100 million to over $7 billion in the past six years.
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Product Details

  • Hardcover: 224 pages
  • Publisher: Free Press; Updated ed. edition (December 1, 1997)
  • Language: English
  • ISBN-10: 0684844109
  • ISBN-13: 978-0684844107
  • Product Dimensions: 6.1 x 0.9 x 9.2 inches
  • Shipping Weight: 1 pounds (View shipping rates and policies)
  • Average Customer Review: 4.6 out of 5 stars  See all reviews (14 customer reviews)
  • Amazon Best Sellers Rank: #644,920 in Books (See Top 100 in Books)

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Customer Reviews

Top Customer Reviews

Format: Hardcover
Professor Rappaport's revised version of his 1986 book on creating shareholder value provides a good description of the value based management concept that he helped create. However, many of the chapters are stand alone sections that do not flow well together. In some chapters he does not provide enough depth on how this book can actually be used by managers. In addition, the chapters on using his concepts to formulate value-maximizing business strategies was somewhat lacking.
Nevertheless, the book was an easy read and many of his points were right on target. I would also highly recommend interested readers to check out "The Value Imperative" by Marakon Associates and "Valuation" by McKinsey & Co for more information on value based management.
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Format: Hardcover
Given that investors value bonds by discounting future cash flows, it stands to reason that they value stocks in the same fashion. Alfred Rappaport is the founder of the shareholder value mindset which gained importance in the '80 and is widely accepted in this new millenium. Rappaport starts the book explaining that objections to using a discounted Cash Flow model do not hold. Strong arguments and empirical evidence is given to explain the market's valuation mechanism. What follows is a basic but thorough explanation of the 3 elements for valuing a company (cash flows , risk and the competitive advantage period). In the second part of the book, it will become clear for the reader DCF is closely linked to strategic analysis and is not in contradiction with stakeholder analysis, customer value analysis, Activity Based costing or any other tool. On the contrary, Rappaport shows DCF is a communication tool that helps investors understand a company's implied performance and how to (re)act. Together with the Valuation book from Copeland, Koller and Murrin this is the book you need.
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Format: Hardcover
It would be nearly impossible to read such a book without finding some area of disagreement. However, as a means to provoke thought and gain a better understanding of the issue of shareholder value it does a fine job. The STRENGTH of the book is that it presents both concepts and content. This allows the reader to use the book as a touchstone when considering potential solutions for their particular area of interest and/or concern. The WEAKNESS of the book is that it tends to become academic and verbose (read boring) in the middle chapters.
On balance I recommend the book be read by anyone interested in the topic of shareholdervalue, EVA, etc. Pause to fully understand the good passages (particularly the concepts), and blow by the rest. It will most likely raise your level of thinking.
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Format: Hardcover
This book covers: investment and the meaning of shareholder value; unjustified conflict between gaining competitive advantage and creating shareholder value; short-comings of accounting; approaches to calculating shareholder value; business strategy; stock market signals to management; and executive performance. Rappaport stresses the unity of goals between shareholder and stakeholders. An excellent and insightful book.
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Format: Hardcover
During the summer InvestingByTheBooks will review some older books that we never got around to writing about although we think they are important. Alfred Rappaport’s Creating Shareholder Value from 1986 is a yardstick for the shareholder value movement. The author shows how corporate managers can apply the shareholder value approach to managing companies and supplies the tools for doing so. Hence, the main audience is corporate managers but the book is equally useful to anyone on the financial markets as it addresses issues bordering between business and finance.

The introductory chapter is of more philosophical nature than the remainder and the author develops his thoughts on why the shareholder value approach is the one to adhere to for businesses. Rappaport points to the moral aspects of the proprietorship that comes with owning something and to the efficiency aspects of optimized capital allocation and how the model benefits the broad masses through both their pensions and higher economic growth – in essence this is how the world rose from the middle ages. It’s much the same discussion that is being held today 30 years later. In retrospect it’s obvious that the CSR and stakeholder camp is winning the match by a mile at the moment. Capitalism is not en vogue in 2015.

The author explains the concept of shareholder value as the present value of all future free cash flows discounted by the cost of capital, net of net debt. Value is created by investing capital in the business that generates a return on investment which is higher than the cost for the invested capital. Thus, trying to increase shareholder value includes handling all the difficult choices between investing now to hopefully generate higher cash flow in the future.
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Format: Hardcover
For the past 12 years, `The Wall Street Journal' has published Dr. Alfred Rappaport's brainchild, the `Shareholder Scoreboard.' This special section lists 1,000 of the largest U.S. corporations (representing 90% of all listed equity values) and shows statistically how "shareholder-friendly" each one is. This journalistic feature popularizes Rappaport's "Shareholder Value" (SV) theory among institutional and individual investors. Investors use this theory to make equity commitments that reflect the author's economics-based criteria. Frankly, the lay reader who has not majored in economics, or in corporate accounting and finance, will find Rappaport's book abstruse. But it leads the way for the informed, inquisitive investor who seeks "business enlightenment" and Wall Street success. Do not be thrown off by the original 1986 print date. A classic is just that, a book that can be read and wisely used for decades. The small, silent shareholder revolution that Rappaport started is far from over. By now, shareholder analysis has become part of the mainstream for hundreds of big companies (though they accepted it gradually). SV is far from perfect as a corporate strategy indicator. The true worth of this book for CEOs and other executives resides in its lessons for implementing the SV approach throughout a corporation. We recommend it to all three informed constituencies of every public corporation: executives, employees and shareholders.
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