Cheryle Harrington

Baker College
BUS3710
Essay
10/28/2017
RUNNING HEAD: MAXIMIZING SHAREHOLDER VALUE

Cheryle Harrington

Baker College

BUS 3710

Maximizing Shareholder Value

Essay

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 Cheryle Harrington
Baker College
BUS3710
Essay
10/28/2017
RUNNING HEAD: MAXIMIZING SHAREHOLDER VALUE

Shareholder Value Essay

In terms of maximizing shareholder value it is the ultimate goal of any profit making

company. There are two reasons for this, one being that shareholders provide the company with

the risk capital that enables managers to buy the resources needed to produce and sell goods and

services. The second reason is that shareholders are the legal owners of a corporation, and their

shares represent a claim on the profits generated by the company. Managers have an obligation to

take those profits and invest them in ways that would maximize the shareholders’ value, while

doing so managers need to make sure that they are acting legally and ethically in all business

related activities.

In terms of shareholder value it means that the returns that shareholders earn from

themselves purchasing shares in the company. The returns come from either dividend payments

or capital appreciation. Shareholder value is actually a ratio in which the earnings available to the

common shareholders are divided by the common stock shares outstanding. This would then give

you the company’s shareholder value. Another easy way to get an idea of the profitability of the

company is by taking the returns that the company makes on the capital invested into the

company.

When it come the corporate world if they focused on long term rather than short term

profits are likely to take into account the interests of the other stakeholders, but a company

completely committed to the long term will not fully understand or grasp the interests of the

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 Cheryle Harrington
Baker College
BUS3710
Essay
10/28/2017
RUNNING HEAD: MAXIMIZING SHAREHOLDER VALUE
shareholders. Investors are paying for future cash flow from projects. If one project in the far

future has a payoff that is larger it must be a better project then one that can payout tomorrow.

The main concern is the time value of money.

Doing good financially in the long term depends on multiple things including risk taking

and strategy. It doesn’t rest upon just meeting quarterly projections or goals. If the management

needs to prioritize the long terms goals over just quarterly projections the company will be better

off long term for it.

To maximize the shareholder value the managers have to come up with a plan and then

implement that plan or strategies to the company that would also enable the company to

outperform the competitions in terms of goods and services that the company provides. Doing

this has to give them a competitive advantage in order to make sure the value of shareholders is

at its max.

The reputation of a company matters as well, especially in the long run. Companies that

place large value on the long run are more likely to take actions that may be costly in the short

run but benefit their reputations in the long run. Other actions that pay off in the long run may

also have important benefits for society—research and development spending is an example.

In terms of conflict that can exist it depends on how the company is run. Many small

companies the owners actually are the shareholders and managers, when this is the case the

companies ideas align greatly with the shareholders ideas. Some of the larger corporations the

CEO or the “president” of the company is not really a shareholder and neither may the vice

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https://www.coursehero.com/file/27145297/HarringtonCheryle-BUS-3710-module-1-shareholder-value-essaydocx/
 Cheryle Harrington
Baker College
BUS3710
Essay
10/28/2017
RUNNING HEAD: MAXIMIZING SHAREHOLDER VALUE
president or the treasurer be so for them their interests could be different than the shareholders,

and most likely are. These people may want cash fast, and this could cause them to not think

long term about the company and what could be done to keep the cash flow going. This means

that if the corporate officers are doing wrong then the shareholder’s liabilities are protected by

the court.

This study source was downloaded by 100000815270033 from CourseHero.com on 02-23-2022 02:51:18 GMT -06:00

https://www.coursehero.com/file/27145297/HarringtonCheryle-BUS-3710-module-1-shareholder-value-essaydocx/
 Cheryle Harrington
Baker College
BUS3710
Essay
10/28/2017
RUNNING HEAD: MAXIMIZING SHAREHOLDER VALUE

References

The Shareholders vs. Stakeholders Debate. (n.d.). Retrieved October 28, 2017, from

http://sloanreview.mit.edu/article/the-shareholders-vs-stakeholders-debate/

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