ASSESSMENT

MANAGERIAL FINANCE

SUBMITTED TO:

MAM NOSHEEN RASOOL

SUBMITTED BY:

ABDULLAH AMJAD

ROLL NO: 2330-B.COM

SECTION (B)

B.COM Semester 5TH

SESSION 2018-2022

DEPARTMENT OF COMMERCE AND FINANCE

GOVERNMENT COLLEGE AND UNIVERSITY,

LAHORE
Role of financial management and innovation in the business value creation:

Value creation is the primary aim of any business entity. Creating value for customers helps sell
products and services, while creating value for shareholders, in the form of increases in stock
price ensure the future availability of investment capital to fund operations. From a financial
perspective, value is said to be created when a business earns revenue (or a return on capital) that
exceeds expenses (or the cost of capital). But some analysts insist on a broader definition of
"value creation" that can be considered separate from traditional financial measures. "Traditional
methods of assessing organizational performance are no longer adequate in today's economy,"
according to ValueBasedManagement.net. "Stock price is less and less determined by earnings
or asset base. Value creation in today's companies is increasingly represented in the intangible
drivers like innovation, people, ideas, and brand." When broadly defined, value creation is
increasingly being recognized as a better management goal than strict financial measures of
performance, many of which tend to place cost-cutting that produces short-term results ahead of
investments that enhance long-term competitiveness and growth. As a result, some experts
recommend making value creation the first priority for all employees and all company decisions.
"If you put value creation first in the right way, your managers will know where and how to
grow; they will deploy capital better than your competitors; and they will develop more talent
than your competition.

 Efficient and effective management of money

 How to raise the capital of the firm or a company
 How to allocate the capital
 Not only long term but the short-term budgeting is done
 It also deals with the dividend policies
 Processing data only once in order to reduce cycle times
 Structuring data so that it provides information
 Leveraging people and technology to improve transaction processing.

Reference;
 https://www.referenceforbusiness.com/management/Tr-Z/Value-
Creation.html#ixzz6kHyXl1q4
Financial management and innovation for shareholder value creation:

Shareholder value is the financial worth owners of a business receive for owning shares in the
company. An increase in shareholder value is created when a company earns a return on invested
capital (ROIC) that is greater than its weighted average cost of capital (WACC). Put more
simply, value is created for shareholders when the business increases profits. Since the value of a
company and its shares are based on the net present value of all future cash flows, that value can
be increased or decreased by changes in cash flow and changes in the discount rate. Since the
company has little influence over discount rates, its managers focus on investing capital
effectively to generate more cash flow with less risk.
 Shareholder value is the value given to stockholders in a company based on the firm's
ability to sustain and grow profits over time.
 Increasing shareholder value increases the total amount in the stockholders' equity section
of the balance sheet.
 The maxim about increasing shareholder value is in fact a practical myth—there is no
legal duty for management to maximize corporate profits.
A company must always prioritize the interests of its shareholders and must take every possible
measure for shareholders’ value creation. There are various principles that a company must
necessarily follow for shareholder’s value creation. The first principle that a company must abide
by is that it must not manage its earnings or, in other words, it must not participate in the
earnings expectations game. This is high because of the fact that if a company focuses too much
on maximizing its earnings, it tends to compromise the value, and this can even destroy its ability
to make operating decisions. The company must take strategic decisions that can help the same
in maximizing the expected value, even if it comes at the cost of slight losses or a lowered rate of
earnings in the nearing time. The company must make acquisitions that can help it by
maximizing the expected value. The company must move forward with assets that add value to
the business.

Maximize Shareholders Value

The measure of an organization’s success can be learned to the extent it goes for maximizing its
shareholder’s value. The management of an organization should primarily focus on the interests
of its shareholders while making necessary management decisions. There are seven drivers
through which a company can maximize its shareholder value. These drivers are revenue, cash
tax rate, operating margin, cost of capital, investment in WC (working capital), incremental CE
(capital expenditure), and competitive advantage period. The organization must not just provide
a focus on profit maximization. Short-term profit maximization is short-lived.
  The organization can choose to increase the unit price of its product by assuming that it is
selling goods at the same amount.
 The management of the organization must make appropriate decisions so that it is able to
sell more units of goods. This will ultimately boost the revenues earned by the
organization, and as a result of this, it can declare a higher amount of dividends for its
shareholders.
 The management must take necessary decisions for decreasing or eliminating the
unnecessary costs in order to boost the savings.
 The management must make the necessary decisions for increasing its fixed cost
utilization.
Conclusion
Shareholder’s value is a primary objective for most companies in the 21st century. With its help,
the companies are able to focus with a broader perspective that is they are evaluating decisions
based on not just current but the future environments too.
The decision-making skills of the management incorporate all the necessary measures that can be
taken for the purpose of maximizing shareholder’s value so that they remain contented and stay
glued with the organization. The way the present equity holders are treated decides not only their
exit but also the entry of potential equity holders.

Reference link:

 https://doi.org/10.1108/eb039108
https://core.ac.uk/download/pdf/6536328.pdf