Imagine you are the CEO of a company that has just enjoyed a year of record sales and earnings. In your annual letter to shareholders, you assure investors that the company’s health and growth prospects have never been stronger. And yet you’ve seen the company’s share price drop 5% over the past year, even as competitors’ stocks gained 10%. Worse, the scenario replays itself the following year: Profit margins and profits again increase, but the stock price treads water while rivals’ shares rack up impressive gains.

What’s going on here?

The problem is a common one: The boost that outstanding current performance gives to shareholder value can be offset when investors’ faith in a company’s future begins to evaporate. To avoid this nightmare, executives need a complete picture of both these components of their business’s value.

Executives have become increasingly sophisticated in the past couple of decades at analyzing the value of current operations and at using that analysis to help them manage with the goal of increasing shareholder value. But they still need to supplement the well-developed tools they use for value-based management with one that can analyze their company’s future value, the portion of the share price that isn’t based on the earnings from current operations or products.

We have devised an approach that allows executives to gain a clear outlook on both the current and future components of their company’s share price. This can give them a better understanding of how the stock market is evaluating their company’s prospects for long-term success. And that can help improve their long-term decision making, by showing them whether, in the eyes