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Risk-adjusted return on capital enhances traditional value-based measurement approaches to drive risk-based decision-making to all levels of the organization.
Maximizing return on investment has always been the primary objective of privately and publicly held companies. True shareholder value is realized when earnings on capital invested is greater than the minimum required by investors to compensate them for taking an underlying risk, measured over a reasonable time horizon. Traditional value-based measurement approaches such as economic value added (EVA) have effectively captured earnings and time dimensions. They have not, however, incorporated risk into the value-measurement equation.
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