The methods for measuring corporate value: an analysis of the pharmaceutical industry

There are various measurement methods used to communicate value to investors. At the corporate level the measures normally used can be both internal (accounting data) or external (stock market data). Accounting measures, such as EPS, ROI, ROE and ROCE have the advantage that they are simple and easy to calculate. However, they refer to the short-term, while the creation of value depends on long-term cash flows. On the other hand, measures that are based on stock market evaluations, such as MVA, MBR and TSR, present problems involving stock price fluctuations, which can depend on factors outside the control of management as well as those management can act on (specific information, for example acquisitions or mergers). This article seeks to show the principal measures of the corporate value that are normally adopted. In particular, it will present the results of an analysis on the corporations' market value and the principal value measures used to communicate to investors in the pharmaceutical sector.