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City takes hard look at soft indications of performance.

Document Cited in Related
Vincent
AuthorTownley, Gemma
PositionBrief Article

A new report shows that capital market analysts are looking at elements such as innovation, strategy and management as the keys to future shareholder wealth

Soft performance indicators, such as the quality of future growth strategy and a company's ability to innovate, are becoming key measures of shareholder value. The City is looking for evidence that managers can fulfil their firm's future growth potential, and over 35 per cent of investors' decisions are driven by non-financial performance, according to research by Ernst & Young.

Capital market analysts are looking at two sources of value: the net present value of a company's existing business model, and the value of its future growth options, the report says. "This equation is what shareholder value management in the new economy is all about," explained Andrew Tivey, partner in Ernst & Young's strategic finance division.

"The old shareholder value management model, which concentrates exclusively on tangible assets and sales growth, profits, cash flow and return on investment is no longer enough. Our new model takes account of the hidden value of intangible assets and the business thinking that will lead to sources of future wealth," he said. "Analysts have told us again and again that they are as interested in the excellence of `soft' features, such as strategy and management, as they are in the excellence of a company's hard numeric models."

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