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THE CONCEPT OF SHAREHOLDER VALUE


A company is successful only when the value for stakeholders is created.

 Revenues and profits are not the only manner in which shareholder value is created.
Maximization of shareholder value is a function of sound financial decision making.



The management team of a corporation should keenly create, measure and maximize shareholder value to meet the stakeholder expectations and maximize the growth of the company. 

The stakeholders in a corporation are also its employees, customers, suppliers, and communities it serves; therefore, altering the age-old perspective that companies exist only to maximize shareholder returns. The new shareholders in a company are now the stakeholders.

However, shareholder value  increases the Present Value of Business by a process called Shareholder Value Enhancement or Shareholder Value Augmentation (SVAg).

In other words, Shareholder Value Augmented (SVAg) addresses the change in value over the Forecast Period. Value Augmentation can happen only if the Investments earn over the Cost of Capital required by the Capital Market.

Normally such enhancement may be achieved by

     a.    Increasing operating profit margins by introducing cost efficiencies or divesting in a loss-making business
 
b.   Reducing Tax by discounting the cost of debt or creating a debt v equity structure favorable to the business balance sheet
 
c.    Improving the sales growth rate by either leveraging the existing customer base or adding new products
 
d.   Reducing Incremental fixed and working capital Investment rate by working off customer advances and creating a product portfolio based on customer requirements inventory.
 
e.   Increasing the duration of growth or the forecast period by creating long term competitive advantages






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