CFO of a company has the responsibility in maximizing the shareholders wealth without affective the goals of the organization. CFO is responsible for making crucial financial decision of a company. CFO of a company has to play the role of a steward, catalyst, operator and strategist, no investment decision of the company can be made without the approval of the CFO. These roles and responsibilities clearly narrate their significant part in shareholders wealth maximization. There are many ways a CFO can use to maximize the shareholders wealth. Here three concepts are being discussed in detail.
Market share growth:
The shareholders wealth increases with the increase in value of the company and share price of the company. Growth in the market share will increase the revenue generating capacity of the company which in turn will increase the overall value of the company. Market share growth can be achieved through long-term investment. It is considered to ...view middle of the document...
This in turn will add more value to the company and wealth to the share holders. CFO can implement even short-term investment strategy to increase the market share. Capturing the market is essential for any business to exist and grow.
Short and long term planning
An in-depth analysis is always being made on continuous basis by the CFO of a company in examining about the market condition and for adopting long-term plans that are based on achieving the accounting goal. The significant reaction of investment decision will be reflected on the market price of shares which will increase the wealth of shareholders. Long-term planning has greater impact in the shareholders wealth when compared to short-term plan. But appropriate short-term plan will enable the company to maintain higher share price. Common strategies are investing in real estate and investing in those ventures which will increase the value of stock is a short tem using short-term planning. Long-term planning includes expansion of business into international market which will create more value to the firm and in turn will increase the shareholders wealth.
Increase cash flow:
The greater cash flow increases the price of stock which results to increase the wealth of shareholders and value of company. Increase in the cash flow will enable the company in achieving their short-terms goals as per the expectation at lesser cost. Profit maximization is not the goal of any CFO as it is confined with profit margin and earnings per share. Increase in the cash flow provides a positive signal about the cash generating capacity of the company which will increase the investors’ confidence and this in turn will increase the market price per share. Higher cash flow will enable the company to make potential investment decision which will add more value to the company at lower cost. This discloses about the financial health of the company and thus will increase the credit rating in the market, which will enable the company to raise funds easily at lower cost. All these are advantage to the company and paves way for higher growth in the market which in turn will maximize the shareholders wealth.