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Striving for Excellent Performance

September 16th, 2009

http://www.thejakartapost.com/news/2009/09/16/striving-excellent-performance.html

Totok Sugiharto , Contributor , Jakarta | Wed, 09/16/2009 2:20 PM | Supplement

The traditional accounting model of valuation argues that particular equity share prices are set when the stock exchange capitalizes a company’s earnings per share (EPS) at an appropriate price/earning (P/E) ratio.

The difficulty is that the P/E ratio of a company changes all the time and this makes the EPS and P/E methods very unreliable as measurement tools for value.

As a consequence, both of the traditional models of performance measurements are inadequate in the sense that neither of them addresses the main concern of shareholders: i.e. is the management adding or subtracting value from their invested capital?

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