Three Concepts to Maximize Shareholders' Wealth

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 be a great opportunity for growth in the future. For instance, a bio-technology company investing in researching medicine for Alzheimer is a long-term investment for the company. But after successful research and approval from the US government for the drug in the market, it will drastically increase the revenue of the company. This dramatic increase in revenue will provide for positive signal to the investors which results in higher share price and increase in market value of the company. Shareholders wealth increases with the increase in market price per share. With the outcome of long-term investment, the company can capture greater portion in the market which will enable them to grow as market leader. 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.