Maximizing Shareholder Value

Focusing on shareholder value emphasizes prioritizing the interests of shareholders (investors) over those of other stakeholders, such as employees and management. This approach is particularly relevant for public limited companies.

Publicly traded firms enhance shareholder value in two main ways: by raising the share price and increasing the dividends distributed to shareholders. Management decisions directly influence these outcomes, as actions may either elevate or diminish the company's share price and dividend payouts. Achieving profit maximization can help reach these goals. When a company successfully maintains and grows its profits, the value for shareholders (reflected in the stockholders' equity on the balance sheet) is likely to rise.

For example, Cadbury Schweppes aims to 'enhance the value of the business for our shareholders.' To realize this ambition, the company has embraced a 'managing for value' philosophy, focusing on objectives such as:

• Achieving a minimum 10% annual increase in earnings per share.
• Generating a minimum of £GBP150,000,000 in free cash flow each year.
• Doubling the value of shareholders' investments within four years.

A potential drawback of this strategy is the risk of conflicting interests between prioritizing shareholders and addressing the needs of other stakeholder groups.

Section 1.1: Examples of Maximizing Shareholder Value

1. Achieving an earnings per share increase of 4.5% in Q3 of 2021.
2. Raising the dividend to USD$0.51 per share.

The first video titled "Maximizing Shareholder Value" discusses various strategies that businesses employ to enhance shareholder returns and the implications of these strategies.