SHAREHOLDERS VALUE By Institution Date Shareholders Value Shareholder value is the measure of a company’s success in the extent to which it enriches shareholders through management’s ability to grow earnings, dividends and share price. The management is increasingly under pressure to increase shareholder value and minimize the arising agency conflicts between shareholders and the management (Bick, 2009, p…
In the recent past, companies are adopting the value based management approach which is a formal systematic approach used in managing companies with an aim of achieving the objective of maximizing value creation and shareholder value (Chapman, Hopwood, & Shields, 2009, p. 1248). Value based management focuses on the key drivers of value thus helping companies achieve their objectives (Starovic, Cooper, & Davis, 2004, 2004, p.15-17). Increasing focus on core competencies has forced companies to outsource some services to ensure that they remain relevant in terms of their revenues and expenditure in comparison with their competitors. Knowing a company’s position is important because it is useful in defining and redefining strategies to improve profit margins and to capitalize on company’s strengths to enhance shareholder value creation (Starovic, Cooper, & Davis, 2004, 2004, p.10-17). Various methods have been used to measure the shareholder’s value but the most commonly used are the profitability analysis, Strategic Profit Mode (SPM), and the Economic Value Added (EVA) method. One of the common methods used to measure profitability is Return On Capital Employed (ROCE) which is the operating profit after tax divide by the net capital employed. However, a major criticism on this method is that it does not measure operating profits and capital employed the way investors do. Investors are concerned about economic profits and the amount of debt and equity invested in the business but these amounts may disagree with those used in company’s financial statements because of the accounting practices in use. For instance, accounting reserves which have to be accounted for in financial statements tend to understate economic profits and the amount of equity capital actually invested in the business. ROCE provides little guidance on the profitability level because of its shortcomings. Given the shortcomings of ROCE, SPM and EVA models are preferred because they enable the company to focus on shareholder value and provide a long-term orientation in their analysis. SPM and EVA are reliable, consistent, and therefore preferred over ROCE method. The Strategic Profit Model (SPM) measures the Return On Net Worth (RONW) of a company which is a tool used to measure the changes in the shareholder value in an organization. RONW is made of three components, which include net profit, asset turnover, and financial leverage. These components are used in the calculation of RONW and they can be controlled by the managers of a company (Viswanadham and Luthra, 2005, p.478). Net profit is the difference between sales and expenses and from it net profit margin is calculated which measures how efficiently a company manufactures and sells its products. Net profit margin is the net profit as a percentage of sales. Asset turnover is the sales divided by the total assets of a company and it shows how efficiently a company employs its assets to achieve a given level of sales. The Return On Assets (ROA) is arrived at by multiplying the net profit margin with the asset turnover and it relates the profitability of a company to the value of assets employed. The financial leverage of a company provides the relationship between the total ...
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The planning involved in building an overall functioning programme of an entire organization is quite extensive and it demands the team’s effectiveness in analyzing different strategies and choosing the distinctive ones which are relevant to the firm and are capable to bring success at the end.
For instance, the countries also negotiate to reduce trade barriers for mutual benefits. The global economy has recorded tremendous growth primarily because of WTO, NAFTA etc. Business enterprises and consumers benefit from this expansion since new opportunities are created and new products are launched respectively.
A firm's value added is not solely associated with management's ability to manage cost centres: Other factors such as transparency, accounting for systemic risk, reliability, intangible assets and other factors must be considered in the post-meltdown market.
However, in order to achieve a balance between the risk and return profile of a firm, it is important that firm must develop and construct strategies which can allow it to generate the kind of value which can balance both the risk and return.( Arnold, 2007), Risk therefore can affect organizations in different manners and as such the overall development of the enterprise wide strategies, making of investment decisions, calculations of hurdle rates as well as the mergers and acquisitions decisions are almost all made based on the firm’s effort to balance its risk and return.
It changes the functioning of economic systems both at the micro and macro levels. Financialisation operates under three conduits namely changes in the operation and structure of financial markets, changes in economic policy and in the behaviour of non-financial corporations (Palley 2007).
In this context, the present report focuses on the evaluation of financial strategy of Unilever. The stage of the organization is firstly decided using the organizational life cycle. The current position of Unilever suggests that it is operating in the matured position and is aiming towards sustainable growth in its business.
For an organization to have edge over its competitors it has to maximize all resources at the lowest possible costs (Ruth, 2006). The organization has to determine which and by how much resource must be allocated to a certain function. What is being referred here is the financial resource.
tal needs in support of its operational objectives over time as well as identifies optimum sources and manners for obtaining that capital.’(Richard D Harroch and Gregory C Smith, page 702)1 Financing a new business is based basically on the type of capital and amount of
The cumulative performance of both the firms is showing a consistent decline in the revenue as well as profitability of both the firms. This has also resulted into the decline into dividend paid out by the firms in order to maintain and sustain
Thus, a risk-conscious enterprise already has strategic plans in hand to handle any sort of crises prior to its happening and furthermore, it would inculcate such strategies in its daily working environment which would minimize any foreseen risks so as to avoid
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