Question

How effective have the corporate structuring been in terms of enhancing shareholder value? Any example?

Answer 1

The corporate structuring of a company have to be very effective strategically so that the shareholders valuation and their wealth got enhanced. The corporate structuring should be build on following pillars to be sound to appreciate shareholders value:

1) Capital Structure : The capital structure should use the leverage well enough to enhance the shareholders wealth. The low cost debts should be employed in projects that will bring higher Net Income to the company. Company like MRF Limited has not raising equity but enhancing the wealth of the present shareholders through leveraging their position.

2) Giving earning guidance : The Board of directors of company like HUL Limited has been guiding the management to make earnings through numerous projects. The management has been showing growth path to the shareholders wealth in the company.

3) Innovation and research : The pharma company round the world has been enhancing the shareholders wealth through the R&D projects in the company.

4) Acquisitions : Through the outward growth of the organization, the wealth of the shareholders are increased. Joining hands with the profitable concerns the shareholders are getting benefits from the day one. The Tata Sons has been doing the external acquisitions and uses the internal accruals to fetch money for the shareholders.

Thus, the above corporate structuring would provide jet growth to the shareholder’s wealth. Out of these the capital structure provides more boost to raise shareholder’s value through (i) using low cost of debt instruments to finance the projects, (ii) not diluting the shareholders weight in capital structure & (iii) using accruals at places where shareholders value is enhanced.

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