Ten Ways to Create Shareholder Value Essay - 825 Words

Ten Ways to Create Shareholder Value (Essay Sample) Content: OutlineIntroductionThe concept of business success is introduced and a discussion on measuring business success in the short-term, medium-term, and long-term is introduced.The thesis statement is also mentionedTen ways of creating shareholders value are presented and discussed in detailConclusion paragraph is given and some remarks on the long-term success of a business are presented.IntroductionThe modern day business world is characterized by numerous dynamics which present a real challenge to the achievement of the set objectives. As such, there has been an increasing pressure mounted on business executives to ensure that the firms they have been entrusted to manage perform and meet the set targets. There are various measures which are used to determine the performance of a firm. The success path of a typical business is divided into short-term, medium-term, and long-term. Most business leaders tend to concentrate on achieving short-term success expectations and in so doing, more often not overlook the long-term success of a firm. This erodes the real shareholder value (Rappaport 5). This essay discusses the various ways to create shareholder value of a firm.Ways of creating shareholders valueThere are several ways that have been proposed to guide to business executives to create sustainable wealth to the shareholders who are the preferential stakeholders in any business undertaking. The first way to is to avoid focusing on short-term earnings expectations. While it is important to ensure that the firms long term success is broken down into short term targets, it is often suicidal to concentrate on the short term earnings as a measure of success for the firm. In order to avoid this, a firm needs to avoid making earnings management.Earnings management always has detrimental consequences to the firms eventual success and it is usually impossible to reverse any damage caused by earnings management irrespective of any brilliant decisions made the reafter. Focusing on earnings management always misleads because of various reasons. First, the earnings are usually derived from the accounting reports, which are mainly prepared based on historical basis. This fundamentally lacks the value creating aspect of the operations since the earnings do not indicate expected returns from the current decisions that the management is making.The second principle to follow is to make strategic decisions which ensure that the value of the firm is maximized. This should always be practiced even if the management has to sacrifice short-term earnings. Making decisions that maximize the expected value of the firm usually involves making estimates of the expected incremental cash flows from the various investment projects at hand (Rappaport 7). This includes making of acquisitions that maximize the expected value of the firm even if it translates into less earnings in the short term.Another way is to ensure that the firm only carries assets that max imize the value of the shareholder. It is evident that the value of a firm is more reliant on the future performance than the past results. In light of this, a firm should always carry out regular assessments on its assets. This determines whether the assets are still used in the most productive manner and whether they provide the best alternative way of generating economic benefits to the shareholders. In doing this, assets that no longer provide value are disposed are the funds raised are used to invest in better projects that maximize the value of the firm or if there are no better projects, the funds are returned to shareholders so that they may evaluate better ways to redeploy their wealth.The other principles are concerned with the benefits that the employees of the firms are entitled. While an employee compensation is primarily a reward for the work done to the company, it is also used to motivate employees to perform better in the future. The latter is usually a principle th at can be used to create shareholder value if employed properly. One way of ensuring that the compensation helps in creating value is to offer rewards to the CEO and the executives based on the long-term returns. One sure way of ensuring this is to adopt the discounted indexed-option plan. Another alternative is the discounted equity risky option plan. These two methods are superior to the famous employees stock options. However, whi... Ten Ways to Create Shareholder Value Essay - 825 Words Ten Ways to Create Shareholder Value (Essay Sample) Content: OutlineIntroductionThe concept of business success is introduced and a discussion on measuring business success in the short-term, medium-term, and long-term is introduced.The thesis statement is also mentionedTen ways of creating shareholders value are presented and discussed in detailConclusion paragraph is given and some remarks on the long-term success of a business are presented.IntroductionThe modern day business world is characterized by numerous dynamics which present a real challenge to the achievement of the set objectives. As such, there has been an increasing pressure mounted on business executives to ensure that the firms they have been entrusted to manage perform and meet the set targets. There are various measures which are used to determine the performance of a firm. The success path of a typical business is divided into short-term, medium-term, and long-term. Most business leaders tend to concentrate on achieving short-term success expectations and in so doing, more often not overlook the long-term success of a firm. This erodes the real shareholder value (Rappaport 5). This essay discusses the various ways to create shareholder value of a firm.Ways of creating shareholders valueThere are several ways that have been proposed to guide to business executives to create sustainable wealth to the shareholders who are the preferential stakeholders in any business undertaking. The first way to is to avoid focusing on short-term earnings expectations. While it is important to ensure that the firms long term success is broken down into short term targets, it is often suicidal to concentrate on the short term earnings as a measure of success for the firm. In order to avoid this, a firm needs to avoid making earnings management.Earnings management always has detrimental consequences to the firms eventual success and it is usually impossible to reverse any damage caused by earnings management irrespective of any brilliant decisions made the reafter. Focusing on earnings management always misleads because of various reasons. First, the earnings are usually derived from the accounting reports, which are mainly prepared based on historical basis. This fundamentally lacks the value creating aspect of the operations since the earnings do not indicate expected returns from the current decisions that the management is making.The second principle to follow is to make strategic decisions which ensure that the value of the firm is maximized. This should always be practiced even if the management has to sacrifice short-term earnings. Making decisions that maximize the expected value of the firm usually involves making estimates of the expected incremental cash flows from the various investment projects at hand (Rappaport 7). This includes making of acquisitions that maximize the expected value of the firm even if it translates into less earnings in the short term.Another way is to ensure that the firm only carries assets that max imize the value of the shareholder. It is evident that the value of a firm is more reliant on the future performance than the past results. In light of this, a firm should always carry out regular assessments on its assets. This determines whether the assets are still used in the most productive manner and whether they provide the best alternative way of generating economic benefits to the shareholders. In doing this, assets that no longer provide value are disposed are the funds raised are used to invest in better projects that maximize the value of the firm or if there are no better projects, the funds are returned to shareholders so that they may evaluate better ways to redeploy their wealth.The other principles are concerned with the benefits that the employees of the firms are entitled. While an employee compensation is primarily a reward for the work done to the company, it is also used to motivate employees to perform better in the future. The latter is usually a principle th at can be used to create shareholder value if employed properly. One way of ensuring that the compensation helps in creating value is to offer rewards to the CEO and the executives based on the long-term returns. One sure way of ensuring this is to adopt the discounted indexed-option plan. Another alternative is the discounted equity risky option plan. These two methods are superior to the famous employees stock options. However, whi...