Your objective is to create wealth for shareholders and so you will be evaluated on the cumulative change in Shareholder Value that your firm generates.
To see the shareholder value of your firm choose the “Financial Results for All Firms” report from the Key Reports menu.
Being evaluated on shareholder wealth is significantly different from evaluation based on net profit, market share, or earnings per share.
You should aim to:
- Maximize net profit
- Minimize shareholder investment
- Minimize risk (associated with high levels of debt)
Due to these multiple objectives, a small niche marketer consistently earning good margins and without much debt may outperform a large heavily-indebted firm with earnings several times greater.
Firms will need to carefully consider these objectives when developing their overall strategy, their marketing, operational and financial plans. Simply increasing in size will not necessarily lead to an increase in shareholder value. You should only invest money (for example in new plant, new product development, or on factory improvements) if you believe that the return on these investments will be greater than what shareholders could achieve elsewhere at the same level of risk (e.g. shareholders can earn returns of 8% by investing in a term deposit). If not, you should instead consider repaying debt, paying a dividend, or repurchasing issued shares.
For more detail on how shareholder value is calculated and how to improve this, see the How to Increase Shareholder Value article.