A mild though interesting debate can also often be witnessed about the conflict of shareholder interests with those of other stakeholders. Interesting because there is no real conflict between maximising shareholder value and the benefit to the other stakeholders. Shareholder value is nothing but the total benefit to shareholders from investing in a company. This includes dividends, and perhaps more importantly, capital appreciation of the shareholders investments. Broadly, both are related to the capacity of the company to generate profits, and as a general rule higher profits, when measured in relation to invested capital, increase shareholder value.
Companies earn profits from their operations and from continued investment in profitable ventures.
Most investors now look to capital appreciation as being the prime motivation for investing in a company. Capital appreciation happens when the share price of the company s equity rises in the stockmarket. Share prices can rise due to a variety of factors, of which earnings is only one. What is happening here is that earnings have expanded in meaning to include the perceived profits that will accrue in the future, and the linkage of shareholders value with earnings is actually even stronger. Shareholder value is a long term concept Shareholder value is not about the day to day gyrations of the stock markets.