Question

In: Finance

Four ways to improve shareholder wealth maximization and how?

Four ways to improve shareholder wealth maximization and how?

Solutions

Expert Solution

Four ways to improve share holder wealth

1) increase price per unit

Increasing the price of your product, assuing that you continue to sell the same amount, or more, will generate more profit and wealth. Of course, there are many obstacles in the way of increasing the price of your product, such as the price charged by competitors, the perceived value received by your customers, and so on. But what if you could increase prices, even by just a few percentage points? What impact would this have on your company? Particularly in a low-margin business, even a modest increase in price might have a significant impact.

2 )fixedcost utilization

Increasing fixed cost utilization is a close cousin to selling more product, with the common theme of decreasing fixed cost per unit. In addi kotion to selling more product with the same fixed costs, manufacturers can also focus on consolidating and rationalizing their fixed costs. Perhaps production activity can be consolidated over fewer pieces of capital equipment? Maybe multiple manufacturing facilities can share production planning and procurement resources? Regardless of the action taken, manufacturers need to be certain that the ultimate goal of increased shareholder value

3)Decrease unit cost

Reducing unit is probably the most common shareholder value creation method cost. It's hard to argue with the benefit of, say, reducing the cost of purchased materials by five percent%, or of reducing inventory investment by 10 percent. These are typically worthwhile objectives and have been the focus of much of our improvement efforts. The list is long of improvement methodologies and tools that, in theory, lead to reductions in

4)Sell more units

Assuming that you are able to keep fixed costs constant, or at least increase fixed costs at a rate that is less than sales growth, this will effectively reduce per-unit cost and, as a result, contribute to shareholder value creation.


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