When shareholders start losing trust in a company's top management, the share price drops. He goes on to explain how he approaches valuation. Shareholder value is the estimated net cash flow for all future years. Companies are legally required to report profit rather than cash flow, but investors need to know about the latter. Shareholder value is not future profit.
Analysts try to translate profit figures into cash flow estimates.
You can ask yourself whether the share price is too low or too high. A very important question is always the value of Philips' minority stakes. At the end of the day, when you deduct the total cost of capital employed from your estimate, then you end up with shareholder value. Shareholders and other capital providers demand a return rate as a kind of interest. Another way of describing shareholder value creation is the value that Philips can give to the capital providers by creating activities that return more than what the market demands as a minimum.