Question

Discuss the significance of the numerator and denominator in the corporate value proposition. Who benefits from the maximization of corporate valuation? (Note: Milton Friedman, among other notable financial economists, had definitive opinions on this.) Why theoretically do so many entities benefit? Do you agree that they all benefit?

Answer 1

In business there are two aspects that can be termed as numerator and denominator in a business and both have its own aspects and factors that contribute towards a better business model. It can be stated that each and every organization possess some objectives which are above the line and also which are below the line and with this two agendas the organization functions effectively. If we talk about the numerator we will observe that the numerator is basically the external functioning of the business that deals with communication with clients and customers, public relations, etc. whereas the denominator is the internal functions that ensure internal workaround of the organization and to ensure that there is minimum waste internally.

The organization and the management is the one that benefits the maximum because if both the external and internal aspects that is the numerator and denominator are in place, then the organization as a whole will benefit and generate revenue and incur the maximum profit as it has the most preferable conditions in this aspect. There are other stakeholders who benefit as well and they are the employees as well as the clients and also the supply chain organizations because if the organization is in benefit then the related entities will also be in benefit and along with that the customers also needs to be in benefit.

Yes, I agree that all of them benefit because that is what the objective of a business organization is, generating revenue from the process of mutual benefit because if the customers don't feel that they have benefitted from the deal then they will not indulge in doing deal with the organization. So, it is generally a related process and the benefit is mutual.