Checkpoint- Financial Management Goals

Checkpoint- Financial Management Goals - causing the total...

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Goals of Financial Management Valuation Approach These are measurements of the total "value" of a publicly-traded corporation. Investors need a way to judge how much a company's stock is worth. To evaluate this, analysts have come up with various earnings valuation models. Earnings are net profits, i.e. what's left over after expenses. Investors often want to know the earnings per share. They also want to calculate the price/earnings ratio, i.e. the stock price divided by the earnings. This is the most common earnings valuation model. Maximizing shareholder wealth (shareholder wealth maximization) Means maximization of the market value of the existing shareholders common stock price because the effects of all financial decisions are included. Private Investors react to poor investment or dividend decisions by selling stocks and
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Unformatted text preview: causing the total market value of the public shares to fall. If the owners of the corporation are to base financial decisions on a single goal, that goal must be precise, not allow for misinterpretation, and deal with all the complexities of the real business world, including but not limited to: legal issues, environmental standards, ethical and cultural considerations, international dimensions, labor demand and rights, tax. Management and stockholder wealth Retention of position of power in long run is by becoming sensitized to shareholder concerns. Sufficient stock option incentives to motivate achievement of market value maximization. Powerful institutional investors are increasing management more responsive to shareholders...
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