UK Accounting Glossary
Any variable that significantly affects the value of an organisation.
A value driver is any variable that significantly impacts the value of an organisation.
Alfred Rappaport identified seven key drivers of value in his development of shareholder value analysis.
These key drivers are:
Of the seven key drivers identified by Rappaport, the first 5 (sales growth rate, operating profit margin, tax rate, fixed capital investment, working capital investment) may be used to forecast the future cash flows of a business, whereas the planning period and cost of capital can be used to calculate the present value of these cash flows.
In practice, companies will have differing value drivers.
For example: Sony produces high-quality products for which consumers are prepared to pay a relatively high price.
Maintaining a high operating profit margin is therefore more critical to Sony that sales growth.
For another company, however, sales growth may actually be a more important factor.
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This glossary post was last updated: 5th May 2019.