Understanding Shareholders Value Vs Stakeholders Value And Increasing Business Value

Key Differences Between Shareholders Value and Stakeholders Value

Shareholders value and stakeholders value are two different and contrasting terms. A stakeholder is one who interacts with the company in any way like customers, suppliers, debtors and even the government. A shareholder on the other hand is someone who has invested in the company and has bought a certain percentage of the company expecting due return on the investment. Business value is the total value of the company in terms of financial position.  Business economic value involves any value that add to the long term success of a business. it is more than the economic value. It involves other forms of value which may include; goodwill from customer, supplier value, employee satisfaction, experience and managerial skills and ethical or community value. It also can be included in the tangible and intangible assets of an organization such as intellectual rights and property as well as the business plan. The method of measuring a business values is called a balanced score card.  In the situation of reorganization of joint-stock companies in the form of affiliation, shareholders are in a losing position (Andriof, Waddock, Husted, and Rahman, 2017).

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There are various ways of increasing business value of a company. They include;

  1. Provision of quality services, goods and delivery
  2. Using IT to add value
  3. Develop effective decision making process by the management and the employees
  4. Investing on development and long strategic goal of the company
  5. Building capability within the business

If a company shares fluctuates, there are 2 ways to deal with it;

  1. Remain a shareholder of the affiliated company;
  2. Sell shares to a company that must redeem them.

According to the law on joint-stock companies and the arguments of the representative of the defendant, the valuation of shares, carried out in accordance with the law on valuation, is not one of the mandatory for determining the conversion rate during depending on the reflection in the charter of a joint stock company (Bezemer, Zajac, Naumovska, van den Bosch, and Volberda, 2015.):

– placed (the initial distribution of shares by the issuer into the hands of the first holders through the primary sale);

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– announced (these are shares that the JSC has the right to place in addition to those placed).

On the stock market can apply as the actual shares, and their substitutes. Often, a shareholder is given a share substitute – a share certificate. Issuing securities certificate – a document issued by the issuer and certifying the totality of rights to the number of securities specified in the certificate. The owner of the securities has the right to require the issuer to fulfill its obligations on the basis of such a certificate (Clarke, 2014).

A share certificate is a security that is evidence of the ownership of a person named in it by a certain number of shares in a joint stock company. One certificate is issued to a shareholder free of charge after full payment of shares. If a stock purchase and sale transaction is made, a transfer inscription is made on the certificate and a new certificate is issued. On each nominal certificate there is a place where it is indicated when and to whom the share is sold.

Measuring Business Value with a Balanced Score Card

Dividend – represents the income that a shareholder can receive in the form of a part of the net profit of the current year of an JSC. This part is distributed by the shareholders in the form of a certain share of the nominal value of the shares, i.e. through the dividend the shareholder’s right to participate in the profits of the JSC is realized. (Cooper, 2017).

However, the law establishes a limit on the payment of dividends:

1) Div. cannot be paid until the authorized capital is paid.

2) Div. cannot be paid if the AO meets the requirement for bankruptcy, or the payment of dividends will lead to bankruptcy. But if dividend payment is announced, then they must be paid.

Dividends are paid in cash or other property, most often by shares. Observed a certain sequence of payment of dividends. First of all on pref shares, and further on the com. paid. Dividends. paid and calculated only on those shares that are in circulation (Dahlberg, and Wiklund, 2018). Since 2002, when at the legislative level shares were no longer issued in the form of a special document, it became possible to confirm the ownership of these securities only by referring to the information of specialized databases – registers of shareholders. The response to a request for such information is provided in the form of an extract from the register of shareholders.

This article will tell you in all details about the compilation, form, expiration date of the extract from the register of shareholders, the formation of a request for its receipt and other important points.

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What is an extract from the register of shareholders

A share is a special type of securities, certifying the right of its owner to participate in the management of a joint stock company by voting at general meetings of shareholders. All shares issued or placed by a legal entity in the course of primary or additional issues are subject to registration in a special set of data – the share register. The enterprise itself or a specialized professional registrar with a permit (license) for this type of activity has the authority to maintain this register.

Any information contained in the register can be obtained by the shareholder, and in some cases by other persons, in the form of an extract. In practice, only enterprises with a small number of shareholders independently maintain a similar set of data.

Increasing Business Value of a Company

The purpose of obtaining the statement form is not only to confirm the fact of the presence of securities on the personal account of the applicant. This minimum information can be obtained in the form of a certificate of the number of shares.

Unlike a certificate, an extract confirms the ownership of a part of the securities of a joint stock company at the date of the document and can be used for the following purposes: submission of information to the bank for processing a loan (shares may be pledged or used as evidence of the shareholder’s financial status);

for registration of a potential transaction for the alienation of shares; for notarial acts.

In addition, an extract from the registry allows you to find out the percentage of the applicant’s securities to the total number of shares of the company. This is necessary in order to establish the right to request information in relation to other shareholders (to exercise such a right, you must have at least 1% of the company’s shares).

The rights and obligations of the joint stock company, the registrar and the owner of the securities are regulated. In order to find out to whom to send a request for issuing an extract, a shareholder can clarify this information from the issuing enterprise, or obtain an extract from the register.

Read below about how to get and how to get (order) an extract from the register of shareholders.

The value of the offer is the volume of a certain type of goods (in the physical dimension) that sellers are ready (willing and able) to put on the market for a certain period of time at a certain level of the market price for this product. External (side) effects – damage (or benefit) from the production of any good that has to be borne (or can get) to people or firms that are not directly involved in the sale and purchase of this good (Manda, Worrell, and Patel, 2015).

External public debt is the debt of public authorities to governments, international banks and financial organizations that provided money in a loan on the basis of government agreements.

Domestic public debt is the indebtedness of state authorities to citizens, banks and firms of their country, as well as foreigners who bought domestic borrowing securities.

Market – all activities related to the purchase and sale of goods of a particular type in a particular region or different regions where goods can be delivered in the usual way. The market of monopolistic competition is a situation characterized by the fact that in order to satisfy the same need, sellers begin to offer buyers many varieties of substitute goods with significant differences, but at the same time each variety is offered to the market by only one seller. Economic growth is a steady increase in the productive capacity of a country.

Dealing with Share Fluctuations for a Company

The need to evaluate investment projects from the point of view of the interests of the owners of firms has long been universally recognized in financial management. However, in terms of assessing the achieved efficiency, the practice of companies has for a very long time been based on the indicators traditionally used in financial analysis. For decades, there was a contradiction between the recommendations for evaluating financial management projects, budgeting trainings Kiev, which the manager received in textbooks on financial management, and guidelines for evaluating the current performance of firms offered in books on financial analysis. What the manager actually focused on depended on the reward system adopted by the company (Keränen, and Jalkala, 2014). Very often these were short-term goals, easily “caught” by standard indicators of financial analysis.

Methods of financial analysis allow us to calculate the system of necessary indicators of “return” in the form of appropriate financial ratios, that is, quantitative indicators of efficiency, which managers of the corporation are going to maintain at a given level. Using the data contained in ordinary financial statements, analysts can easily determine the values ??of return on sales, assets, equity, raised capital and other indicators. The basis for comparison in the analysis of indicators may be historical values, data on other divisions of the company, data on other enterprises of the industry (Macdonald, Kleinaltenkamp, and Wilson, 2016).

However, financial ratios for the most part do not take into account value increases for shareholders. At the same time, recommendations for evaluating new projects required using the net current value (NPV) of the project as the main investment criterion, which directly reflects the expected increase in business value from the point of view of its owners.

There are two reasons why the contradiction between the two approaches was “resolved”, as a rule, in favor of targeting indicators of financial analysis. First, it is the achievement of the target level of a number of financial ratios that have traditionally been used in firms as the basis for building a system to encourage managers. Secondly, only in very few companies a system was introduced to monitor the results of investment projects (it is usually extremely difficult to identify the “contribution” of a particular project to the overall business results of a multidisciplinary firm).

Managers of large corporations are increasingly using new indicators to assess the current performance of corporations in general and their divisions. They combine the current gauges, reflecting the results of the company for the year (half a year, quarter), with the prescribed financial theory indicators of shareholder value maximization (SVM). Using such a single criterion, any management decisions (investment, financial, and others) can be assessed based on how they increase the value of the company. In particular, many multinational corporations have begun to include in their annual reports such indicators as economic value added, return on investment calculated using cash flows, and a number of others.

Extract from the Register of Shareholders

Value creation is one of the fundamental categories of modern management, in particular the management of the company’s finances. For an existing firm, value creation essentially means an increase in the firm’s value (firm’s value), in other words, an increase in the wealth of its owners (in a joint stock company, the wealth of shareholders).

Effective value-oriented management requires the knowledge of value factors by managers, that is, those variables that affect the value of a firm. These variables describe various management decisions in a firm — investment, financial, operational (in the areas of production, supply, marketing, personnel, etc.). Investment decisions that predetermine the amount of investment needed, future sales revenues and profit margins, and financial decisions, including decisions regarding capital structure, dividends and risk attitudes, are part of the firm’s overall strategy (Raithel, and Schwaiger, 2015). New performance indicators An important advantage of value-based management systems is the ability to use criteria based on the same principles for evaluating potential projects with future revenues and for monitoring the performance of firms and their divisions over the past period. It seems, however, that the methods used in the framework of value-based management are more appropriate to use to assess the actual performance of the company, as well as to reconcile the interests of the owners of the companies and hired managers by linking the managers’ premiums to the indicators of equity value growth. As for the evaluation of individual projects, it is quite possible to dispense with such criteria based on the method of discounted cash flows, like NPV and IRR, as well as modifications of these indicators (Rosemann, and vom Brocke, 2015). The practical value-oriented management tools that allow analyzing the actual change in the value of a firm are the

Companies use various modifications of the economic value added indicator, as well as modifications of the profitability index calculated on the basis of cash (and not accounting) flows. The EVA® indicator and its modifications make it possible to measure the performance of a company in any particular year (or other period). As noted by Fortune journalists, “EVA promises to transform the concept of value creation from a simple slogan to a powerful management tool, perhaps even transferring financial management from ordinary to generals!” Increasing value and encouraging managers As an indicator of economic value added and its modifications for planning and monitoring the performance of the company as a whole and its individual units, these indicators can be laid in the basis of the reward system for managers of the company. Various modifications of the economic profit indicator have already been adopted by many corporations (Shen, Chen, and Wang, 2016). They are designed to remove the contradiction between evaluations of the effectiveness of the use of financial sources at the expense of which assets are formed, and the remuneration of managers of a company whose task is to ensure the maintenance and creation of value.

Understanding External and Domestic Public Debt

Conclusion

The system is based on a simple idea: since the source of funds for capital investment in a business is the capital market, value management should be based on market conditions. Every project should provide profitability at least equal to the requirements of the market where the invested capital is attracted, and also cover the costs of reproduction of the relevant assets in the process of their wear. This minimum yield, known as the “barrier rate,” is defined as a guideline by the corporation annually (Williams, 2018). In accordance with the basic principles of value-based management, actions of managers that create and enhance the value of a firm should be encouraged. It is in this way that the built manager incentive system is in the interests of the owners of the company.

References

Andriof, J., Waddock, S., Husted, B. and Rahman, S.S., 2017. Unfolding stakeholder engagement. In Unfolding stakeholder thinking (pp. 19-42). Routledge.

Bezemer, P.J., Zajac, E.J., Naumovska, I., van den Bosch, F.A. and Volberda, H.W., 2015. Power and Paradigms: The D utch Response to Pressures for Shareholder Value. Corporate Governance: An International Review, 23(1), pp.60-75.

Clarke, T., 2014. The impact of financialisation on international corporate governance: The role of agency theory and maximising shareholder value. Law and Financial Markets Review, 8(1), pp.39-51.

Cooper, S., 2017. Corporate social performance: A stakeholder approach. Routledge.

Dahlberg, L. and Wiklund, F., 2018. ESG Investing In Nordic Countries: An analysis of the Shareholder view of creating value.

De Haes, S., Joshi, A. and Van Grembergen, W., 2015. Benchmarking and business value assessment of COBIT 5.

Fridgen, G., Klier, J., Beer, M. and Wolf, T., 2015. Improving business value assurance in large-scale IT projects—A quantitative method based on founded requirements assessment. ACM Transactions on Management Information Systems (TMIS), 5(3), p.12.

Hair Jr, J., Sarstedt, M., Hopkins, L. and G. Kuppelwieser, V., 2014. Partial least squares structural equation modeling (PLS-SEM) An emerging tool in business research. European Business Review, 26(2), pp.106-121.

Keränen, J. and Jalkala, A., 2014. Three strategies for customer value assessment in business markets. Management Decision, 52(1), pp.79-100.

Manda, B.K., Worrell, E. and Patel, M.K., 2015. Prospective life cycle assessment of an antibacterial T-shirt and supporting business decisions to create value. Resources, Conservation and Recycling, 103, pp.47-57.

Macdonald, E.K., Kleinaltenkamp, M. and Wilson, H.N., 2016. How business customers judge solutions: Solution quality and value in use. Journal of Marketing, 80(3), pp.96-120.

Raithel, S. and Schwaiger, M., 2015. The effects of corporate reputation perceptions of the general public on shareholder value. Strategic Management Journal, 36(6), pp.945-956.

Rosemann, M. and vom Brocke, J., 2015. The six core elements of business process management. In Handbook on business process management 1 (pp. 105-122). Springer, Berlin, Heidelberg.

Shen, Y.C., Chen, P.S. and Wang, C.H., 2016. A study of enterprise resource planning (ERP) system performance measurement using the quantitative balanced scorecard approach. Computers in Industry, 75, pp.127-139.

Williams, K.B., 2018. The Caterpillar Way: Lessons in Leadership, Growth and Shareholder Value and Demographics and the Demand for Higher Education. College and University, 93(3), p.55.