Wealth creation has been the professed goal of companies all along and continues to be so. But how many have actually created wealth and how many have not? There are many metrics ranging from ROI to EVA. Stern Stewart's Wealth Added Index is a new addition to this list.

The quest for a perfect metric to measure wealth creation is an ongoing one. From simple measures such ROI to the new Wealth Added Index, a trademark of Stern Stewart & Co, the metrics have evolved greatly in terms of quality. It is this wealth created that helps in the valuations investors ascribe to companies on the bourses. Increased shareholder activism has forced companies to pursue the goal of enhancing shareholder wealth with an extraordinary vigor. Today both companies and their shareholders alike are aware and responsive to the idea that the wealth creation for shareholders is the supreme goal of the myriad activities undertaken by companies. The fact that investors are quick to reward and punish companies that have created or destroyed wealth has added another parameter to evaluate `strategies for companies.

There have been periods of both wealth creation and wealth erosion in history. During boom time, immense wealth is created for shareholders, whereas, at bust time the same wealth gets eroded. In his paper Wealth Creation, Eric Von Baranov observes that prior to the Great Depression of 1929, wealth was created till 1919 after which it was consumed. The rapid 1929 run up in stocks was a result of monetizing the wealth accumulation of 25 years into a very short period, he adds. In addition to the strategies adopted by companies at the firm level, the mood of the business environment also adds up to the general trends in wealth creation and destruction.

The goal of creating wealth has always been laudable but attempts to measure accurately how much wealth companies have created and what are the corporate actions that have a significant impact on the wealth of shareholders have been few and far between. Companies have traditionally been ranked based on their revenues, profits and profit margins. Ranking companies in terms of the wealth created is an attempt of fairly recent origin. Measures such as earnings per share or return on equity try to capture the wealth created though in a limited way. Many companies and their executives look at the `total shareholder return' as a better measure for the wealth created. Total shareholder return is the annual change in the share price and the dividends received by shareholders.

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