There are various stakeholders in an organization. The two key stakeholders are the customers and the stockholders. Some financial managers believe that the customer is always right and an organization must do everything possible to win customer delight, thereby gaining a high market share and, subsequently, investor confidence. Conversely, some financial managers believe that a stockholder is more important than a customer because investors have many stock options available to them. Some organizations are better at attracting investors' capital.
With this framework in mind, what according to you should be the objective of an organization that is particularly good at attracting investors' capital? How can a financial manager increase the chances of meeting this objective?
What a conundrum!
In order to attract investors, the managers must continually increase sales and earnings per share. To do that, they need to continuously keep old customers and increase new customers.
How would you solve this?
The objective of an organization that is particularly good at attracting investors' capital is to maximize shareholder value. This means that the organization aims to increase the value of its stock and provide satisfactory returns to its shareholders. Financial managers can increase the chances of meeting this objective by focusing on the following strategies:
1. Financial Performance: The organization should strive for consistent and strong financial performance. This includes achieving profitability, strong cash flows, and efficient use of resources. Financial managers should manage costs, generate revenue growth, and improve profitability ratios such as return on equity (ROE) and return on investment (ROI).
2. Transparency and Communication: Financial managers should maintain transparency and effective communication with shareholders. This includes providing timely and accurate financial information, disclosing relevant business metrics, and addressing investors' concerns promptly. Regular financial reporting and shareholder meetings are key components of this strategy.
3. Dividends and Share Buybacks: Financial managers can increase shareholder value by distributing profits to shareholders in the form of dividends. Additionally, share buybacks can be used to reduce the number of outstanding shares, thus increasing the ownership stake and value for existing shareholders.
4. Growth Opportunities: Financial managers should identify and pursue growth opportunities that can drive the organization's future profitability and increase its stock value. This may involve investing in research and development, expanding into new markets, acquiring complementary businesses, or developing innovative products and services.
5. Corporate Governance: Implementing strong corporate governance practices is crucial for maintaining investor trust. Financial managers should ensure that the organization has effective board oversight, ethical business practices, and appropriate risk management policies. Protecting the interests of shareholders and ensuring their rights are respected is paramount.
6. Relationship-building: Financial managers should actively engage with existing and potential investors to build strong relationships. This can involve regular meetings, providing information on the organization's performance and strategy, and addressing any concerns or questions raised by investors. Building trust and credibility with investors can increase their confidence in the organization and their willingness to invest.
It is important to note that while attracting investors' capital is important, organizations should also pay attention to their customers. Both customers and stockholders play significant roles in the success of an organization, and ultimately, a balanced approach is crucial for long-term sustainable growth.