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Part 1: Stockholders and Managers
We all know that managers and stockholders work for the company, but what we don’t know is that do they really work for the organization always? The organizations which are dealing with a bigger structure often have pockets within the company which perform normally, under the expectation or above expectations. But, the funnier aspect of all this is that these members of the organization who really don’t want to make any change or do any improvisation, still persistently make unrequired decisions, which affect the company’s growth and persistence. In my experience one such instance was there when our group was transitioning its work to other team, yet the knowledge was significantly lacking for the receivers. The group was suffering due to rocky movement of transition while it was to affect the overall operations as well since it was truly production related issue.
Making strategies, organizing structures, dispersing knowledge and dispersing power are some of the manager related duties to be performed but are they fruitful always? Are they needed always (Bower & Gilbert, 2007)? These are some of the questions which remained unanswered but have a lot of significance. The complexity of resource allocation increases the requirement for good leadership, which if not provided can result in irreversible issues. The companies look forward to go with type of management they think is best, but is it going to work out for them is the questions?
Managers and stockholders are often confused to be in the similar positions which can be dangerous for the organizations as this can either affect the ability of a manager to think put of the box or can equip him to make a wrong decision. Therefore, company often uses motivational tools in order to keep this in line with which both the individuals keep themselves on the same page (Rappaport, 2006). Some of the tools used here to diminish this confusion are:
It is suggested that managers should not manage earnings while abstain from earning guidance as well, this could help them be to be productive in their work.
It is important that the decisions made are in sync for maximizing profits though reducing the near-term income.
Both the manager and the stockholders should work together to maximize the value which can reduce the conflict in these regards.
They should make sure the shareholders don’t budge, so it is better off to pay off the cash to them when possible rather reinvesting the profits always.
Rewarding always works, so keeping the stockholders and other executive paid with incentives always works, as it lowers the desires and keeps operations up and running.
Part 2: Application of Concepts from Chapters 5 and 6
We all know that how important risk management is and how risk can help mitigate and improvise the processes of the organization. Risk is defined as the chance of losing on the finances (Gitman & Zutter, 2015).A decision maker should always be vigilant with regards to this concept. Not considering this fact can prove inability and can lead to the company’s loss overall as well. Returns are also usually based on these facts where they add to the investment or the assets of the organization. To averse a risk, a risk manager requires to be on top notch with his returns. For example if the opportunity is worth $100,000 and risk is worth $60,000, which shows that the returns are lower in comparison, therefore based on returns calculation, this investment is worth less.
Since, chapter 5 talked about returns, the next chapter talks about bonds, yields and stock valuation (Gitman & Zutter, 2015). The rate on interests usually determine the yield values while based on the ROI or the return on investment one can calculate the return on the bonds or stocks, which can give the valuation for a good or a bad investment. The federal government refer the same way to determine the term structure of interest rates as well.
Gitman, L. J. & Zutter, C. J. (2015). Principles of Managerial Finance 14th edition. Boston, MA: Pearson.
Rappaport, A. (2006). Ten ways to create shareholder value. Retrieved from https://hbr.org/2006/09/ten-ways-to-create-shareholder-value
Bower, J. L. & Gilbert, C. (2007). How managers’ everyday decisions create-or destroy-your company’s strategy. Retrieved from https://hbr.org/2007/02/how-managers-everyday-decisions-create-or-destroy-your-companys-strategy?cm_sp=Article-_-Links-_-Comment
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