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Presentation on theme: "Shareholder Value https://store.theartofservice.com/the-shareholder-value-toolkit.html."— Presentation transcript:

1 Shareholder Value https://store.theartofservice.com/the-shareholder-value-toolkit.html

2 Business value - Shareholder Value 1 For a publicly traded company, shareholder value is the part of its capitalization that is equity as opposed to long-term debt. In the case of only one type of stock, this would roughly be the number of outstanding shares times current shareprice. Things like dividends augment shareholder value while issuing of shares (stock options) lower it. This shareholder value added should be compared to average/required increase in value, also known as cost of capital. https://store.theartofservice.com/the-shareholder-value-toolkit.html

3 Crisis management - Impact of catastrophes on shareholder value 1 So the net impact on shareholder value by this stage was actually positive https://store.theartofservice.com/the-shareholder-value-toolkit.html

4 Corporate finance - Maximizing shareholder value 1 In practice, maximizing shareholder value is not always possible and usually difficult to accomplish, because managers must do an analysis to determine the appropriate allocation of the firm's capital resources and cash surplus between projects and payouts of dividends to shareholders, as well as paying back creditor related debt. https://store.theartofservice.com/the-shareholder-value-toolkit.html

5 Working capital management - Maximizing shareholder value 1 Maximizing shareholder value requires managers to be able to balance capital funding between investments in projects that increase the firm's long term profitability and sustainability, along with paying excess cash in the form of dividends to shareholders https://store.theartofservice.com/the-shareholder-value-toolkit.html

6 Value-based management - Agency theory and shareholder value 1 By making firms’ finances available to scrutiny, shareholders become more aware of the agent’s behavior and can make informed choices about with whom to invest.Dobbin, The Rise of Shareholder Value, Sociology 25, Harvard University. https://store.theartofservice.com/the-shareholder-value-toolkit.html

7 Value-based management - Maximizing shareholder value 1 Newmark: Al Franken Was Right, Corporations Are Legally Required To Maximize Profits] (September 13, 2010) this does not imply that executives are legally obligated to maximize shareholder value.) https://store.theartofservice.com/the-shareholder-value-toolkit.html

8 Value-based management - Maximizing shareholder value 1 The concept of maximizing shareholder value is usually highlighted in opposition to alleged examples of CEO's and other management actions which enrich themselves at the expense of shareholders. Examples of this include acquisitions which are dilutive to shareholders, that is, they may cause the combined company to have twice the profits for example but these might have to be split amongst three times the shareholders. https://store.theartofservice.com/the-shareholder-value-toolkit.html

9 Value-based management - Maximizing shareholder value 1 As shareholder value is difficult to influence directly by any manager, it is usually broken down in components, so called value drivers. A widely used model comprises 7 drivers of shareholder value,Corporate Financial Strategy, Ruth Bender, Keith Ward, 3rd edition, 2008, p. 17 giving some guidance to managers: https://store.theartofservice.com/the-shareholder-value-toolkit.html

10 Value-based management - Maximizing shareholder value 1 This more detailed concept therefore gets rid of some of the issues (though not all of them) typically associated with criticism of the shareholder value model. https://store.theartofservice.com/the-shareholder-value-toolkit.html

11 Value-based management - Maximizing shareholder value 1 Based on these seven components, all functions of a business plan and show how they influence shareholder value. A prominent tool for any department or function to prove its value are so called shareholder value maps that link their activities to one or several of these seven components. So, one can find HR shareholder value maps, RD shareholder value maps, and so on. https://store.theartofservice.com/the-shareholder-value-toolkit.html

12 Value-based management - Disadvantages of the shareholder value model 1 Shareholder value may be detrimental to a company’s worth. When all of a company’s focus and strategy is concentrated on increasing share prices, the practice and ethics of the firm can become lost because of the following problems with the shareholder value model. https://store.theartofservice.com/the-shareholder-value-toolkit.html

13 Shareholder value 1 'Shareholder value' is a business term, sometimes phrased as 'shareholder value maximization' or as the 'shareholder value model', which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders. It became popular during the 1980s, and is particularly associated with former CEO of General Electric, Jack Welch. https://store.theartofservice.com/the-shareholder-value-toolkit.html

14 Sustainable growth rate - Optimal growth rates from a total shareholder value creation and profitability perspective 1 'Optimal Growth' according to Martin Handschuh, Hannes Lösch and Björn Heyden is the growth rate which assures sustainable company development – considering the long-term relationship between revenue growth, total shareholder value creation and profitability. https://store.theartofservice.com/the-shareholder-value-toolkit.html

15 Sustainable growth rate - Relationship between revenue growth, total shareholder value creation and profitability 1 In the long-term and across industries, total shareholder value creation (stock price development plus dividend payments) rises steadily with increasing revenue growth rates. The more long-term revenue growth companies realize, the more investors appreciate this and the more they get rewarded. https://store.theartofservice.com/the-shareholder-value-toolkit.html

16 Sustainable growth rate - Relationship between revenue growth, total shareholder value creation and profitability 1 The combination of the patterns of revenue growth, total shareholder value creation and profitability indicates three growth zones: https://store.theartofservice.com/the-shareholder-value-toolkit.html

17 Sustainable growth rate - Relationship between revenue growth, total shareholder value creation and profitability 1 * 'High Speed: ' Even higher total shareholder value generation however in combination with lower profitability beyond 25% per year https://store.theartofservice.com/the-shareholder-value-toolkit.html

18 Sustainable growth rate - Relationship between revenue growth, total shareholder value creation and profitability 1 Independent of industry consolidation and industry growth rate, companies in many industries with growth rates in the range of 10 to 25% revenue growth p.a. have both, higher total shareholder value generation as well as profitability than their slower growing peers. https://store.theartofservice.com/the-shareholder-value-toolkit.html

19 For More Information, Visit: https://store.theartofservice.co m/the-shareholder-value- toolkit.html https://store.theartofservice.co m/the-shareholder-value- toolkit.html The Art of Service https://store.theartofservice.com


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