Extra information summary.docx - H2 Goals Values and Performance Value maximizing approach = To maximize its value a firm must maximize its future net

Extra information summary.docx - H2 Goals Values and...

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H2: Goals, Values and Performance Value maximizing approach = To maximize its value, a firm must maximize its future net cashflows while managing its risk to minimize its cost of capital. - Cash flows rather than profit as relevant performance measure. - Full DCF approach most satisfactory in valuing companines. Shareholder value maximization: 1. Intrinsic value: the NPV of the stream of profits that accrue to owners discounted at cost of equity. 2. Market value: the current stock market value of the firm’s shares. Wrong with shareholder value maximization: can encourage management to maximize short- term profits, financial manipulation etc. Performance measures: Stock market value (forward-looking): compare change in the market value of the firm relative to that of competitors over a period. Imperfect indicator, because of its sensitivity to new information and vulnerability to market psychology and disequilibrium. Accounting ratios (backward-looking): rate of return on capital, cost of capital, profit growth. Use of historical measures are a limitation. ROC key indicator. But the longer the period, the more they tend to converge. Dilemma: short-term pursuit of financial targets is unlikely to result in long-term profit maximization. Solution: link overall corporate goal of value maximization to strategic and operational targets. = Balance scorecard How do we look to shareholders? (financial) How do the customers see us? (customer) What must we excel at? (internal business) Can we continue to improve and create value? (innovation & learning) Corporate social responsibility (CSR) = The firm is embedded within an ecosystem of its social and natural environments, implying a congruence between the interests of the firm and those of the supporting ecosystem. - A company has two mandatory responsibilities: financial and legal - CSR: going beyond the mandatory in order to create legitimacy and trust for the company among the stakeholders ethical and moral responsibility - Shared value: creating economic value in a way which also creates value for society. H16: Current trends in strategic management The new environment of business: 1. Turbulence Black swan events : Highly improbable and unpredictable events. Now more systematic changes that have made the business environment more crisis-prone. Global economy: increasing interconnectedness through trade, financial flows, markets and communication. Systems theory = Increasing levels of interconnectedness within a complex, nonlinear system increase the tendency for small initial movements to be amplified in unpredictable ways. 2. Competition Economic growth will remain sluggish throughout the medium term. In most sectors excess capacity is the norm. This fuels strong price competition and squeezes profit margin.
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Internationalization by companies of emerging markets. China and India are increasingly competing in final markets instead of being OEM firms. Increasing number of cross-border acquisitions by companies from emerging countries.
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