What do you understand by Shareholder Value Added (SVA)? What are the benefits of adopting SVA?

Shareholder Value Added (SVA) represents the economic profits generated by a business above and beyond the minimum return required by all providers of capital. 'Value' is added when the overall net economic cash flow of the business exceeds the economic cost of all the capital employed to produce the operating profit. Therefore, SVA integrates financial statements of the business (profit and loss, balance sheet and cash flow) into one meaningful measure. The SVA approach is a methodology which recognizes that equity holders as well as debt financiers need to be compensated for the bearing of investment risk. The SVA methodology is a highly flexible approach to assist management in the decision-making process. Its applications include performance monitoring, capital budgeting, output pricing and market valuation of the entity. The benefits of moving towards SVA include: Overall, value-based performance measures will result in greater accountability for the investment of new capital, as well as for the use of existing investments. Organization will have the opportunity to apply a meaningful private sector benchmark to evaluate performance. Managers will be provided with an improved focus on maximizing shareholder value.