What are the core drivers of shareholder value I should track?

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AcadiFi · Accepted Answer

Rappaport's classic framework narrows shareholder value drivers to seven: sales growth rate, operating margin, cash tax rate, incremental fixed capital investment, incremental working capital investment, cost of capital, and competitive advantage period. In practice, four dominate 80% of value creation: 1. ROIC-WACC spread: the most powerful lever. A 100 bp spread increase on $2B of invested capital creates $20M of annual EVA. 2. Reinvestment rate: high-spread firms that can reinvest at similar spreads compound faster. Formula: growth = ROIC × reinvestment rate. 3. Competitive advantage period: the number of years the firm can earn positive spreads before mean-reverting. Most industries reach a 5-15 year range. 4. Capital discipline: releasing working capital, divesting non-core assets, and right-sizing fixed assets. For Riverstone Packaging, decomposing a 12% five-year total shareholder return: - ROIC-WACC spread expansion: 4.2% - Reinvestment (organic growth): 3.8% - Multiple expansion: 2.5% - Dividend yield: 1.5% ```mermaid flowchart TD A[Shareholder
Value] --> B[ROIC-WACC
Spread] A --> C[Reinvestment
Rate] A --> D[CAP
Duration] A --> E[Capital
Discipline] ``` Avoid fixating on EPS growth. Accretive-to-EPS deals can still destroy value if ROIC falls below WACC.

What are the core drivers of shareholder value I should track?

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