While this is an excellent aggregate measure and takes into account the contributions of knowledge employees have to the total shareholder value, capturing its transformation into market value is not as precise as using indices and analytics. A secondary approach is to use the knowledge management performance index (KMPI) (Kun, Lee, in, 2005). This index serves as a foundation for evaluating the contributions of knowledge to the three financial measures of stock, price, price earnings ratio and R&D expenditures (Kun, Lee, in, 2005). These three factors combined provide insights into how knowledge differentiates a firm and also creates value over the long-term as well. The index also captures how value being created as a result of effective knowledge use by employees is impacting the Price-Earnings Ratio (P/E Ratio) of a given firm, which is a critical metric that institutional investors use to evaluate firms they want to hold stock in for the long-term (Kun, Lee, in, 2005).

References

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