Shareholder Value Creation Case Study

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Introduction Shareholder value creation is important objective of organization. It is important for managers to take decisions which assist in creating shareholder value. Creating shareholder value become important for several reasons. (a) Globalization is one of the important factors. Investor can easily sift from one to another organization which gives high returns on investment. (b) Corporate governance is demanding accountability from corporate executives. There are several philosophies exits which assist in creating shareholder value. Value based management (VBM) is one such method. In this approach, shareholder is taken as focal point. This doesn’t mean that other stake holder of organization such as employees, customers, suppliers and…show more content…
(d) Opportunity cost for using capital. In value based management system, shareholder value will be created when revenue exceeds all costs. So shareholders expect firms to generate revenue exceeding the all costs. If shareholders don’t get expected return, they can withdraw their shares. If shareholder value is depreciating, it will be difficult for the firm to attract funds for further growth and operation [16]. 3.1.2 Firm-level value drivers for shareholder value creation To maximize the shareholder value, an organization should understand important value drivers which influence value creation. Organization can’t act directly on shareholder value. It should concentrate things it can influence or control like customer satisfaction, reduction in cost, higher variable margin on goods and reducing other operational expenditure. Value driver is a variable which influence organization value. It is important to know which impact of each variable on value creation. Shareholder value creation drives can be categorized in to four [16]. 1.…show more content…
There are assumptions made in sustainable growth rate such as depreciation is sufficient to maintain the value of existing assets, the profit margin remains stable (also in new businesses), the proportion of assets and sales remains stable (also in new businesses) and the company maintains its current capital structure and dividend pay-out policy. The sustainable growth rate can be used if business plans are reasonable [19]. (b) Optimal growth rate: This assures sustainable growth for company considering long-term relationship between revenue growth, total shareholder value creation and profitability. Assessment is based on the performance of more than 3500 stock-listed companies with initial revenue of greater 250 million Euros globally and across industries over a period of 12 years from 1997 till 2009. Due to this long time period, results are independent of specific economic cycles [19]. Relationship between revenue growth, total shareholder value creation and

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