Provide 1 response to each student post. Each response should be 150 words each. Turnitin and Waypoint is being used to check for plagiarism and Please use APA format. Please pay close attention to plagiarism, and it's not tolerated.
Tuesday Jul 2 at 7:25pm
Since the majority of compensation packages of management and senior executives are usually tied to the quarterly and annual success of the corporation, there is always the temptation to focus on the short-term profits as opposed to the long-term goals of the corporation. Additionally, it is easy to focus on stock prices, even though it more than likely changes every day. This tends to provoke managers to lose sight of strategic planning required of corporations that are successful in the long-run. Firms that are focused on short-term profit vice long-term wealth creation will tend to invest less capital in order to achieve short-term profits. Many investors think along the same lines and want the return on their investment immediately, not sometime down the road. This mindset will lead to risky financial decisions, leading to less than optimal performance. Additionally, the corporation’s reputation may also take a bit of a criticism and the loyalty of a select few customers may be sacrificed. For example; let us say that a corporation fails to invest money into work force training. Failure to do so will allow the corporation to make more profit in the short-term and show a lower average variable cost of the product or service offered, this will ultimately show a larger short-term profit but will have no long-term profit creation due to the lack of training provided to the workforce.
Chris
Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance. [Electronic version]. Retrieved from https://content.ashford.edu/
Thursday Jul 4 at 5:57pm
To say that managers should not focus on the current stock value because doing so will lead to overemphasis on short-term profits at the expense of long-terms profit is not a fair statement by means. I can, however ,say that focusing on the current stock value every single day and worrying about the smallest fluctuation isn't very healthy and could be deemed very stressful for some. Companies stock value gives a good indication of how the company is doing. If the company is slowly losing value every single day for the course of the year, I wouldn't be to concerned as a shareholder as long as the manager told me this was part of a bigger plan.
Last year Nike decided to take a calculated risk when it put Colin Kaepernick as the face of their new ad. They knew that it would hurt their sales initially but the support that they would get after that initial blow would more than make up for it. I am sure they lost quite a few loyal customers but they gained so many more. "The goal of managers of the corporation should be the maximization of long-term shareholder wealth or long-term firm value." (Bryd & McPherson 2013) I believe setting yourself up for long-term success is more valuable than short term success.
One example I could think of using the balance sheet is when some companies want to try and expand. They end up biting off more than they can chew. They allow other investors to come in and loan capital but at horrible interest rates, handicapping the company for many years making it impossible for them to ever really gain any profit for themselves. While if they just waited and used their own capital to finance their expansion they could have more profitable.
References:
Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial finance [Electronic version]. Retrieved from https://content.ashford.edu/