...Shareholder Wealth Maximization Shareholder wealth maximization is the idea behind trying to drive a stock's price up. The shareholders are the actual owners of the company. By driving the price up the company becomes worth more than just the value of its assets. The sum becomes greater than the value of its parts. It becomes worth more to keep the business running than it would be to sell off the parts. Maximizing shareholder wealth is often the most important goal of a company; however, the bottom line is that profit is required to increase the dividends paid out with each common stock that constitutes shareholder wealth. Thus, an effective manager will be more concerned with the primary means of profit-making within a company. For example, Coca-Cola makes money by maintaining a powerful brand name and manufacturing an enjoyable consumer product. To maximize shareholder wealth, Coca-Cola must first maintain the status of its brand and product. Coca – Cola is one publicly traded corporation that you believe is maximizing shareholder wealth their vision is “maximizing return to shareowner being mindful of our overall responsibilities.” The company’s major goal is to further increase stake in global beverage market. Coca cola works to use their assets to become an even stronger and more competitive company for is shareowners benefit. Provide the public with beverages that satiates their consumers’ wants and needs. Partner with companies where loyalty is and maximize shareholders...
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...A critical analysis of AstraZeneca plc.’s shareholder wealth creation in the five-year period from 2010-15 * Xiaoyu Zhang August 2016 MSC in Accounting and Financial Management Global Pharmaceutical Industry Overview Pharmaceutical industry is closely bound up with people’s living standard, which also correlates general economic and deserves thoroughly research and analysis. Due to favorable demographic trends and significant unmet medical needs, the pharmaceutical industry is expected to enjoy long-term growth. According to the research conducted by AstraZeneca, there is 9.5% growth in 2015 of global pharmaceutical sales (AZ annual report 2015, p12). The number of people accessing healthcare is increasing, as is healthcare spending, particularly by the elderly. For example, WHO estimated that, by 2050, the world’s population aged 60 years and older is expected to total two billion, up from 900 million in 2015 and that, by then, 80% of all older people will live in low- and middle-income countries. Emerging markets are expected to continue to boost pharmaceutical growth. Furthermore, the increasing threat of non-communicable diseases (NCDs), such as cancer and cardiovascular, metabolic and respiratory diseases, has killed tens of millions of people. It is estimated that NCDs kill 38 million people each year and especially affect low- and middle-income countries where nearly three-quarters of these deaths occur (WHO, 2011). As reported, NCDs are often associated...
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...accountable to their shareholders, stakeholders and the general public. See financial management is the essential because a big amount people can be affected by the unethical behaviors and the actions on a business. The employees deserves to know what’s going on in the upper management and with the company as a whole just in case in advance of potential but yet serious problems. The shareholders and the general public have to know to because the shareholders got to know what are going on with company and what they’re investing. Their money depends on its financial strength of the company. The general public has to know for the fact of the transactions of a public traded company, just in case if there is catastrophe, which they could be responsible for it bailing out of the company including with the taxpayers money. Economic status in company’s market place could include price earning ratios, the earnings per share, the price and cash ratios, book value per share, dividends yielding, market value per share and the marker and book ratios. The market value gives the management an ideal of what the company or firm investors thinks of their performance and future prospects. If a company’s ratios are good then the market value ratios can or should reflect on that and stock prices may go high. The increasing of a company’s stock prices depends on the business managers trying to maximize the wealth. When stock prices increases an individual who holds the stocks wealth does increase too...
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...Shareholders A shareholder is a stakeholder in a company because they own shares in the company. Another reason that a shareholder is a stakeholder is because they provide funding for Monarch. On 15 November 2011 the shareholders provided £77 million of funding. Shareholders A shareholder is a stakeholder in a company because they own shares in the company. Another reason that a shareholder is a stakeholder is because they provide funding for Monarch. On 15 November 2011 the shareholders provided £77 million of funding. Monarch Stakeholders Introduction Monarch Airlines operates a fleet of 32 aircraft on scheduled and charter flights from a number of UK airports, including Birmingham, East Midlands, Leeds Bradford, London Gatwick, London Luton and Manchester. Flying to more than 50 destinations worldwide, it carries in excess of 6.5 million passengers every year. Competitors British Airways is a stakeholder in Monarch because they are competitors and they want their sales to increase. British Airways is a stakeholder because they are competing with Monarch to try and sell as many flights as possible. British Airways is a stakeholder in Monarch because they are affected by the decisions Monarch make. Employee An employee is a stakeholder because they work at Monarch. They are interested in the success of the company because they do not want Monarch to go out of business. This would make the employees at Monarch lose their jobs. Employees...
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...not breaking the laws, government protection only, free market and charity. The Egoism viewpoint is to maximize long-term self-interest. The Stakeholder Theory is less ethical from the Libertarianism viewpoint, because there are some major concerns that don’t agree with their principles. The first principle it breaches is no-direct harm, because it does cause direct harm. The theory causes direct harm by having everybody set as equal to the firm, but in reality the creditors and shareholders are above everybody. I believe this causes harm in that you have to pay back your creditors and shareholders back first, because without them there would not be a company and if you don’t pay them their higher percentage they will not re-invest inside the company, which will cause the direct harm to the pie by causing the equal pie pieces to be broken up and forcing the company to shutdown due to default. This theory also infringes on the rights of the Financials, because if they were to pay back the shareholders and creditors it would be done through dividends, which comes from the company’s performance. So to pay back a higher dividend they have to have a large net-income, so then they would have to raise prices to their customers, which then they are taking one piece of the pie to give to the other piece of pie that should be even, thus causing...
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...between shareholder wealth maximization and profit maximization? If a firm chooses to pursue the objective of shareholder wealth maximization, does this preclude the use of profit maximization decision-making rules? Explain. The profits maximization refers to how much dollar profit the company make. Unlike the profits maximization, the definition of shareholder wealth maximization states that management should seek to maximize the present value of the expected future returns to the owners of the firm. I think the shareholder wealth maximization can include the profit- maximization model, it consider more than profit maximization model, for example, the shareholder wealth maximization mode consider the timing of return and the risk of the company, it will also consider the profit the company can make. So that we should use the shareholder maximization model for company’s decision making. 6. Explain why management may tend to pursue goals other than shareholder wealth maximization. There are some reasons for the company not use the shareholder wealth maximization for the decision making. First, the shareholder wealth maximization is a long-term goal, it need time to considering, if a company must use a short time to do the decision making, it may not use the shareholder wealth maximization model. Second, if the manager just want to maximize their own bonuses, they normally consider things based on short term goals which may not be to the benefit of shareholder so that...
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...his perception of cost control by not wasting packing supplies and as well as using company property in an efficient and in a cost-effective manner. However, even though Dale feels he is carrying out his work with full efficiency as is his group of co workers in his department, the result is a downturn in the company stock price by almost $2 a share over the last nine months. What should the management of Sports Products, Inc. pursue as its overriding goal? Why? The overriding objective of the company management of Sports Products needs to focus on how to maximize the assets of the shareholders in the business. The corporate objective task of making the most of shareholder wealth presupposes that company management work in the best interests of stockholders and not just their own individual goals and not to try to seize wealth from lenders to benefit company stockholders. Stockholder wealth maximization also presumes that company managers do not take measures to mislead...
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...believe that a majority of the money, time and effort should come from employee contributions rather than corporate dollars used for funds, grants and scholarships. Companies should limit their direct involvement in these activities using just their brand and influence to raise public awareness to the cause, so long as it is consistent with the companies’ values and beliefs. I also believe it is the firm’s primary job is to focus on delivering the highest possible return of shareholder value. If a company cannot produce a profit, or sustain the shareholder’s appetite, then the possibility of promoting a Project Share cannot exist. Everything in the business revolution is predicated on returning value. I should clarify, that my statements above are based upon the fact the companies in discussion are publicly traded and not private entities. Private entities, which include partnerships, limited liability corporations and other non-traded companies with limited employees and owners who are the sole shareholders, can operate as the social responsibility doctrine as they see fit. 2) Milton Friedman’s, belief was that the one and only one social responsibility of a company is to” use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say engages in open and free competition without deception or fraud.”(Beauchamp, Bowie & Arnold, 2009, p.55) He also believed that corporations cannot have responsibilities...
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...When we operate a business, maximizing company’s wealth is more suitable than maximizing its profit as a goal of the business, it is because maximizing profits relates to profits only, and it assumes away the problems such as uncertainty of returns and the timing of returns, while maximization of the market value of the owners’ equity has take into all the considerations of all the financial decisions, such as wealth for the long term; risk or uncertainty; the timing of returns; and the stockholders’ return. Maximization of profits is regarded as the most commonly cited goal, always concern with the operational plans, but it is not a suitable objective at all, because there are many alternatives inside this outlined goal, For example, does that mean a short term or long term maximization target? Or what kind of profit is the target focuses on? It is not a fully appropriate objective, partly because it does not specify the timing or duration of expected returns. Is the investment project that will produce $100,000 return 5 years from now more valuable than the project that will produce annual returns of $15,000 in each of the next 5 years? An answer to this question depends upon the time value of money to the firm and to investors at their interest. Another shortcoming of aiming at maximizing profit is that it does not consider the risk or uncertainty in the process of making profits. Some investment projects are more risky but the profit cannot reflect this situation. As...
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...Problem Set 1 Problem 1 Which project should the firm select? Why? Project B: Managers should try to maximize their stock’s intrinsic value while also bringing in revenue. The P/E ratio shows the dollar amount investors will pay for $1 of current earnings. Problem 2 If most investors expect the same cash flows from Companies A and B but are more confident that A’s cash flows will be closer to their expected value, which company should have the higher stock price? Explain. The primary goal of a corporation should be to maximize its owner’s value. If a manager is to maximize shareholder wealth, he/she must know how that wealth is determined. Fundamentally, shareholder wealth is the number of shares outstanding at times the market price per share. A stock’s price at any given time depends on the cash flows a “marginal” investor expects to receive after buying the stock. With that being said, Company A’s cash flow would increase the stock price and the risk would be minimal. Management’s goal should be to make decisions designed to maximize the stock’s price. Problem 3 The president of Southern Semiconductor Corporation (SSC) made this statement in the company’s annual report: “SSC’s primary goal is to increase the value of our common stock holders’ equity.” Later in the report, the following announcements were made: a. The company contributed $1.5 million to the symphony orchestra in Birmingham, Alabama, its headquarters city b. The company is spending $500 million...
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...Xin Zheng xinzheng@callutheran.edu Chapter 1 2. What are the differences between shareholder wealth maximization and profit maximization? If a firm chooses to pursue the objective of shareholder wealth maximization, does this preclude the use of profit maximization decision-making rules? Explain. Profit maximization means the company makes profit maximize. Maximize shareholder wealth states that management needs to bring maximize the value for its owners by make the most efficient resources and reasonable financial management. Therefore, shareholder wealth maximization include the profit-maximization model, it considers not only profit maximization model, but also the timing of return and the risk of the company. The most important the company will consider how much the profit it can make. Therefore, we should use the shareholder maximization model when company do decision making. 6. Explain why management may tend to pursue goals other than shareholder wealth maximization. When a company has to make a decision in a short time, it will use the profit maximization model. The reason is that the shareholder wealth maximization is a long-term goal; it takes time to consider and analysis. On the other hand, if the manager wants only to maximize bonuses, they will not consider the benefit of shareholders. So they will not consider things by using the shareholder wealth model. 13. Metropolitan Life Insurance Company, Swiss Bank Corporation, and several other holders of RJR...
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...purchase of new shares. As a result of the inflow of new target shares (of which hostile acquirer was not able to purchase any), hostile acquirer’s ownership percentage is substantially diluted. Faced with such dilution, hostile acquirer has no choice but to give up its hostile approach. Shareholders other than hostile acquirer are able to buy newly-issued target shares at a substantial discount. If hostile acquirer wants to continue, it has only two practical choices: (1) negotiate with target since only target’s board has the power to redeem the poison pill; or (2) launch a proxy contest to gain control of target’s board of directors because, again, only target’s board has the power to redeem the poison pill. There are two types of poison pills: flip-in and flip-over. A flip-in allows existing shareholders (other than the hostile acquirer) to buy more shares at a discounted price. By purchasing more shares cheaply, investors get instant profits and, more importantly, they dilute the shares held by the competitors. As a result, the competitor's takeover attempt is made more difficult and expensive. This is the tactic used by PeopleSoft against Oracle Corp. The flip-over allows shareholders to buy the acquirer’s shares at a discounted (reduced) price after the merger and thus makes the merger considerably more expensive. This type of strategy...
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...stockholder is generally limited to the amount of the stockholder’s investment in the shares of the corporation. Creation of a corporation is a legal process that requires the preparation of articles of incorporation. On the other hand, a sole proprietorship is not distinct from the individual who operates the business. Therefore, the sole proprietor (i.e., the individual) directly owns the business assets, manages the business, and is personally responsible for the debts of the sole proprietorship. 2. What do we mean when we say that corporate income is subject o double taxation? Double taxation means that a corporation’s income is taxed first at the corporate tax rate, and then, when the income is distributed to shareholders as dividends, the income is taxed again at each shareholder’s personal tax rate. 3. Explain why each of the following may not be appropriate corporate goals. a. Increase market share b. Minimize costs c. Underprice any competitors d. Expand profits Increased market share can be an inappropriate goal if it requires reducing prices to such an extent that the firm is harmed financially. Increasing market share can be part of a well-reasoned strategy, but one should always remember that market share is not a goal in itself. The owners of the firm want managers to maximize the value of their investment in the firm. Minimizing costs can also conflict with the goal of value maximization. For example...
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...DB1: Needs of the Stakeholder and Shareholder Obligations The discussion board question to be addressed in this paper is how can a company focus on the needs of its stakeholders without neglecting its shareholder obligations? Answering this question will require defining both stakeholders and shareholders, identifying the corporation’s responsibility to each and then stating the solution. Shareholder According to Lewis and Weber, a shareholder is “a person, group, or organization owning one or more shares of stock in a corporation; the legal owners of the business” (Lawrence & Webber, 2013, p. 585). These are also known as stockholders. The company and its managers are generally expected or obligated to produce as much value as possible for the company’s owners and investors. They are “to make the most money it can for shareholders who own stock in the company” (Lawrence and Webber, p. 12) Stakeholder A stakeholder is defined as “persons or groups that affect, or are affected by, an organization’s decisions, policies, and operations” (Lawrence and Webber, p. 584). Commonly included in such are employees, customers, suppliers, and the community, as well as shareholders and other investors. The idea is that there is a corporate social responsibility or obligation of the firm to serve all stakeholders interests which is practiced through “stakeholder management” (Mattingly, J. E., 2004). The Solution With the inclusion of shareholders in the definition of stakeholders...
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...counterarguments from differing schools of thought and ultimately conclude in agreement with Milton Friedman’s shareholder approach to business ethics. It is not the responsibility of the managers to worry about anyone’s interest besides the owners of the company (within the confines of the law), but in many cases, what is best for employees may also be best for the shareholder. I will begin by discussing Friedman’s view through a broad definition and example, then apply it to the question of a manager’s responsibility. I will then present the means of happiness as an employee along with the...
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