• Shareholder Value
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Business value - Shareholder Value
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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.
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Crisis management - Impact of catastrophes on shareholder value
So the net impact on
shareholder value by
this stage was actually
positive
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Corporate finance - Maximizing shareholder value
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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.
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Working capital management - Maximizing shareholder value
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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
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Value-based management - Agency theory and shareholder value
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.
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Value-based management - Maximizing shareholder value
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.)
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Value-based management - Maximizing shareholder value
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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.
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Value-based management - Maximizing shareholder value
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:
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Value-based management - Maximizing shareholder value
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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.
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Value-based management - Maximizing shareholder value
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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.
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Value-based management - Disadvantages of the shareholder value model
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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.
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Shareholder value
'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.
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Sustainable growth rate - Optimal growth rates from a total shareholder value creation and profitability perspective
'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.
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Sustainable growth rate - Relationship between revenue growth, total shareholder value creation and profitability
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.
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Sustainable growth rate - Relationship between revenue growth, total shareholder value creation and profitability
The combination of the patterns of
revenue growth, total shareholder value
creation and profitability indicates three
growth zones:
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Sustainable growth rate - Relationship between revenue growth, total shareholder value creation and profitability
* 'High Speed: ' Even higher total
shareholder value generation however in
combination with lower profitability beyond
25% per year
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Sustainable growth rate - Relationship between revenue growth, total shareholder value creation and profitability
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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.
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