...Capabilities to Increase Stakeholder Wealth: A Balance Scorecard Approach Every for-profit company wants to be at the top of the food chain when it comes to financial wealth and goals. To increase company wealth a firm must balance their scorecard which consists of four key perspectives: financial, internal, customers, and future. I chose this article for my paper because one of my goals in life is to be at the top of the pyramid at a for-profit company. Some of the tools that are mentioned in this article will help me build my foundation on to achieve my goals of reaching top management at a for-profit company. Brief Overview The article discusses how for-profit companies can build and increase their wealth from an internal and external standpoint. The article also addresses how resources are accessed, developed, combined and/or deployed which leads to wealth creation. Taking a balance scorecard approach is one way a company can determine how capabilities can lead to wealth creation. The balance scorecard approach consists of the following perspectives: financial, internal, customers, and the future. The article also proposed a modified balance scorecard which consists of shareholders, customers, employee, and future positioning perspective. The financial perspective is concerned with risk and profit from a shareholder point of view. Public firms are in business to create and increase shareholders wealth. If a firm is not profitable, shareholders will invest in other firms...
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...Mergers And Acquisitions: Shareholder Wealth Effects Mergers and acquisition otherwise identified as M& A defines an aspect of corporate management strategy, as well as corporate finance that deal with the selling, the buying and dividing of the various companies. It also involves combining the various companies and similarly oriented identities which could assist a given enterprise to grow rapidly within its sector of origin, or even a new field or location even without necessarily creating some subsidiary or joint type of a venture. The actual distinction which exists between a merger and an acquisition has been seen to become increasingly blurred in several aspects. This has been seen to be significant particularly in terms some ultimate economic outcome. Acquisition normally refers to the process of significantly smaller firms by a significantly large firm. However, it is notable that in some instances, a smaller firm could acquire some management control of a significantly larger firm or even a longer established firm in an effort to retain the real name of the latter for some past acquisition entity through combined efforts. This normally results into a reverse takeover and affects all the shareholders who are involved within the two firms. According to research study done by Ang and Kohers across the US territory, a reverse merger could also affect the shareholders in significant ways. This is because the merger enables a given private company to become publicly...
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...Abstract Economic Value Added (EVA) is a value based performance measure that gives importance on value creation by the management for the owners. Profit maximization as a concept is age-old, wealth maximization is matured and value maximization is today’s wisdom. Stern Stewart’s EVA raises storm in corporate world and gives a new way to think about rewarding management. Usability of EVA largely depends on the quality of accounting information system, as traditional information system will not provide sufficient information to compute true EVA. Thus, EVA is required to be tailored in line with accounting system, management philosophy and the degree of demand of such a system. In this paper, an earnest effort has been made to explain theoretical foundation of EVA with its origination, definition, ways to make it tailored, adjustments required, scope and some other related issues. The methodology used is a type of theoretical mining of logics resulting a step-by-step process required for EVA implementation. As corporate house plans to move from traditional to value based performance measures, EVA would yield good result and the paper may become helpful to them to comprehend the methodology. Keywords: Value Based Performance Measure, Tailored EVA, Residual Income (RI), Accounting Distortions, Shareholders’ Value, Value Based Measure, Market Value Added, True EVA 1. Introduction Economic Value Added (EVA) is the financial performance measure that comes closer than any...
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...The goal of all companies is to create value for the shareholder. But how is value measured? Wouldn't it be nice if there were a simple formula to figure out whether a company is creating wealth? A growing number of analysts and consultants think there is an answer. Like many economic formulas, the measure - economic value added (EVA) - is both intriguingly clever and maddeningly deceptive. Does EVA simplify the task of finding value-generating companies or does it just muddy the waters? What Is EVA? EVA is a performance metric that calculates the creation of shareholder value, but it distinguishes itself from traditional financial performance metrics such as net profit and earnings per share (EPS). EVA is the calculation of what profits remain after the costs of a company's capital - both debt and equity - are deducted from operating profit. The idea is simple but rigorous: true profit should account for the cost of capital. To understand the difference between EVA and its older cousin, net income, let's use an example based on a hypothetical company, Ray's House of Crockery. Ray's earned $100,000 on a capital base of $1 million thanks to big sales of stew pots. Traditional accounting metrics suggest that Ray is doing a good job. His company offers a return on capital of 10%. However, Ray's has only been operating for a year, and the market for stew pots still carries significant uncertainty and risk. Debt obligations plus the required return that investors demand for...
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...many regards, there are also a number of underlying issues that must be addressed. To do so, one must consider each of the functions that define a “good” Board: * Oversee managers to ensure maximization of shareholder wealth * Direct the organization’s affairs * Punish and reward managers * Protect shareholder interests * Protect owners from managerial interests * Independence of the Board To this end, Apple has done well to establish a strong Board to ensure future success. It is particularly important to note the separation of the CEO and Chairman role, which allows the Board to have significant oversight and influence over the CEO’s actions. Furthermore, the diversified nature of the Board allows it to identify unique avenues for sustainable growth, given the various degrees of success its members achieved across several different industries. This diversification allows the Board to protect shareholders’ interests and direct the company’s focus towards value creation, rather than wealth entrenchment. However, with this being said, it is unclear whether the Board has the power to drive managerial decision making processes. For example, one of the functions of a “good” Board is to punish and reward managers with respect to how well they respect shareholder interests. Apple’s Board, while diversified and experienced, gives no indication of whether or not there is a process to punish the executives for making poor or selfish decisions. Moreover, there is no indication...
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...painters, and sculptors. It can also refer to the right of bestowing offices or church benefices, the business given to a store by a regular customer, and the guardianship of saints. The word "patron" derives from the Latin patronus, "patron," one who gives benefits to his clients (see Patronage in ancient Rome). Abstract This essay proposes a new patronage network driven by a Transfer Technology Office sustained per Citizens. Engage to generate wealth created by innovator citizens and that this wealthy be distributed to thinker citizens. Source readings: patronage history and the books The World is Flat and Open Business Models. From the Beginning of the first Organized Societies, the art, supported by patronage Were sciences. The development of the same innovations to generate this value was by wealthy people and / or political power within society (e.g. family Medici, Pope Julius II who sponsored Rafael). In other words, the benefits of this value was for people with resources and in some ways was "monopolized" the creation of innovations by the high echelons of society. Whatever its roots, it became firmly institutionalized in Florentine life. As Biagioli describes it, patronage was not an "option." It was the key to social status, and, in Florence, there was an absolute social hierarchy. A career and social mobility were impossible apart from being involved in a network of patronage relationships. Even the working poor found themselves a part of this complicated...
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...CASE STUDY FOR FINANCIAL MANAGEMENT CASE 4: The Battle for Value, 2004: FedEx Corp. vs. United Parcel Service, Inc. VALUE CREATION AND ECONOMIC PROFIT I. OUTLOOK OF CASE 4 Case 4 mentions about the competition between two leading companies in package- delivery market. FedEx which is the largest foreign presence in China, with 11 weekly flights, serving 220 Chinese cities, so the company’s volumes in China had grown by more than 50% between 2003 and 2004. UPS which is the world’s largest package-delivery company and dominant parcel carrier in US, serving 200 cities in 2003. FedEx had virtually invented customer logistical management, and was widely perceived as innovative. Historically, UPS had reputation for being big, bureaucratic and an industry follower. Two companies have their own market, an individual characteristics, and inconclusive. Thus, not only based on the development and operation of the two companies, the analysis also relied on the special purpose financial ratios ( especially Economic Value Added (EVA), an effective measure and rapid for firm within an industry) to find which company has more competitive advantage. II. INTRODUCTION 1. FedEx corporation: [pic] FedEx, formally known as Federal Express, started delivering packages and freight on April 17, 1973. The company was...
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...managers an opportunity to pursue their own interest instead of that of shareholders.. In ‘theory’, shareholders are the only owners of a company, and the task of its directors is merely to ensure that shareholders’ interests are maximised. More specifically, “The ‘duty’ of directors is to run the company in a way which maximises the long term return to the shareholders, and thus maximises the company’s profit and cash flow. However, Jensen and Meckling (1976) observed that mangers do not always run the firm they work for to maximise shareholders’ wealth. From this observation, they developed their agency theory, which took into account the principal-agent relationship as a key determinant in determining firm performance. According to their definition, “An agency relationship is a contract under which one or more persons (the principal[s]) engage another person (the agent) to perform some service on their behalf which involves delegating some decision-making authority to the agent . The problem is that the interest of the principal and the agent are never exactly the same, and thus the agent, who is the decision-making part, tends always to pursue his own interests instead of those of the principal. It means that the agent will always tend to spend the free cash flow available to fulfill his need for self-aggrandisement and prestige instead of returning it to shareholders. Hence, the main problem faced by shareholders is to ensure that managers will return excess cash flow to them...
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...corporate behaviour. These can be seen as increasing levels of maturity. CSR theories Those theories generally include a certain vision of the human being and society within a social philosophy framework, although sometimes in an implicit manner. Three key approaches to CSR: 1, ethical responsibility theory, which presents strong corporate self-restraint and altruistic duties and expansive public policy to strengthen stakeholders’ rights. 伦理责任理论,提出了强大的公司涵养和利他主义的职责和广阔的公共政策,加强各利益相关者的权利。 2, economic responsibility theory, which advocates market wealth creation subject only to minimalist public policy and perhaps customary business ethics. 3, corporate citizenship, which language invokes a political metaphor which provides neither true intermediate positioning nor theoretical synthesis. Four theories: 1, Corporate Social Performance, a theory basically grounded in sociology. 2. the theory sometimes called ‘ Shareholder Value Theory’ or...
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...edition, Chapter 31. 1 1. Fundamentals 2 Takeovers, Acquisitions, Mergers and Schemes • Takeover – One firm (the bidder) acquires control of another firm (the target) by purchasing the voting shares of the target from the shareholders of the target – The consideration paid by the bidder may be cash and or shares (in the bidder) – Usually conducted on a hostile basis whereby the managers of the bidder do not consult with the managers of the target firm prior to launching the bid – A full takeover involves the bidder acquiring 100% control of the target. A partial takeover involves the bidder acquiring less than 100% control. Takeovers, Acquisitions, Mergers and Schemes • Acquisitions – In general, the purchase of an asset by a firm – Includes purchases of single assets from a supplier or the purchase of the business undertaking and assets of another firm or the purchase of the voting shares of another firm Takeovers, Acquisitions, Mergers and Schemes • Merger – A negotiated deal between the managers of the bidder and the managers of the target which effectively results in the two firms becoming one – There are various ways by which a merger can be effected including (i) a share exchange between the bidder and the shareholders in the target and (ii) a scheme of arrangement – The traditional distinction between a merger and a takeover is the degree of hostility between the bidder and target – A merger is essentially a “friendly takeover” Takeovers,...
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...The essential goal behind the decision making policies of a bank is to capitalize on the wealth of the bank’s shareholders. At times, there are some managers in the banks that make decisions that are in their own best interest as to oppose to the shareholders interest. For instance, decisions that affect the growth of the bank may be proposed to raise employees salaries, where as larger banks have the tendency to provide more employee compensation. Also, “the compensation to a bank’s loan officers may be linked to loan volume, which encourages a loan department to extend loans without concern about any risk.” (Madura, 2008) “As these examples suggest, banks can incur agency costs, or costs resulting from managers increasing their own wealth as to oppose to the shareholders wealth.” (Madura, 2008) For banks to prevent these types of agency problems, a few banks give stock as compensation to managers. With those types of managers they normally will make sure to maximize the shareholders wealth because they are also shareholders. If any of the decisions made by the manager are conflicting with the goal of maximizing the shareholders wealth, the share price will not be able to attain its highest. The board of directors are either appointed or elected to act as, representatives of the stockholders to institute corporate management related policies and to make decisions on major company matters. Some duties include the hiring and firing of executives, dividend policies, options policies...
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...The essential goal behind the decision making policies of a bank is to capitalize on the wealth of the bank’s shareholders. At times, there are some managers in the banks that make decisions that are in their own best interest as to oppose to the shareholders interest. For instance, decisions that affect the growth of the bank may be proposed to raise employees salaries, where as larger banks have the tendency to provide more employee compensation. Also, “the compensation to a bank’s loan officers may be linked to loan volume, which encourages a loan department to extend loans without concern about any risk.” (Madura, 2008) “As these examples suggest, banks can incur agency costs, or costs resulting from managers increasing their own wealth as to oppose to the shareholders wealth.” (Madura, 2008) For banks to prevent these types of agency problems, a few banks give stock as compensation to managers. With those types of managers they normally will make sure to maximize the shareholders wealth because they are also shareholders. If any of the decisions made by the manager are conflicting with the goal of maximizing the shareholders wealth, the share price will not be able to attain its highest. The board of directors are either appointed or elected to act as, representatives of the stockholders to institute corporate management related policies and to make decisions on major company matters. Some duties include the hiring and firing of executives, dividend policies, options policies...
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...Unit 1 Assignment 1 1. Finance: The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities. Finance consists of financial systems, which include the public, private and government spaces, and the study of finance and financial instruments, which can relate to countless assets and liabilities. Some prefer to divide finance into three distinct categories: public finance, corporate finance and personal finance. All three of which would contain many sub-categories. Financial Management: The planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization. Finance can be broken into three different sub-categories: public finance, corporate finance and personal finance 2. There are three basic forms of business ownership, namely the sole proprietorship, the partnership and the corporation. ADVANTAGES OF SOLE PROPRIETORSHIPS: Ease of starting and ending the business, Being your own boss, Pride of ownership. Leaving a legacy Retention of company profits. No special taxes. DISADVANTAGES OF SOLE PROPRIETORSHIPS. UNLIMITED LIABILITY Limited financial resources. Management difficulties. Overwhelming time commitment. Few fringe benefits. Limited growth. Limited life span. ADVANTAGES OF PARTNERSHIPS. ...
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...asymmetries, technological advances, etc. have created a need for various types of financial instruments. The purpose of this paper is to provide a brief description of how financial instruments relate to the field of Finance and Seminar in Finance, and to also examine more thoroughly six particular instruments that have been developed. Financial instruments belong in the Investments and Corporate Finance sub-fields of Finance. As we have learned, the Investments sub-field has one objective—to maximize an investor’s return/wealth. Financial instruments have the ability to accomplish this goal. In fact, numerous instruments/innovations have been developed for this purpose, a few of which will be mentioned in the latter portion of this paper. Instruments are also vital to the sub-field of Corporate Finance. The goal of Corporate Finance is to maximize shareholder wealth. By developing instruments that will help a corporation with its costs, shareholder wealth can possibly be increased. Many times instruments are designed by financial engineers to obtain funds that are essential to the operation of businesses, which makes firms more efficient. “The nature of financing required or cost considerations dictate a special instrument…or a combination of instruments to be used in concert.” (Marshall) The three pillars of finance are also relevant when discussing financial instruments. For example, new instruments can be created as a result of continuous changes in regulations...
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...led to the development of two key forms of management goals – shareholder wealth maximisation and stakeholder capitalism. This essay will seek to evaluate the distinctions between these two forms of corporate governance. The shareholder and wealth maximisation (SWM) principle states that the immediate operating goal and ultimate purpose of a public corporation should be to maximize return on equity capital. This perspective views corporate social responsibility as an inappropriate wealth decreasing altruism unless it yields future positive returns for the firm (Windsor, D., & Boatright, J. R. 2010). Prominent in Anglo-American markets, SWM is based on the premise that management are appointed as the agent of the shareholders, therefore having a fiduciary duty to run the company for their benefit (Jensen, M. & Meckling, W.1976). The theory is further underpinned by the assumption that the stock market is efficient, meaning that the share price is always correct; as such share prices are deemed the best allocators of capital (CORE TEXT BOOK). The stock markets constant thirst for positive quarterly financial reports filters down to management level as failure to post favourable results can lead to dismissal; such is the nature of equity markets. The fact that executive compensation schemes are often tied to profits and stock options in an attempt to align management’s interests with those of the shareholders means there is less aspiration from managers to pursue long term...
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