How to Increase Shareholder Value

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Shareholder value is primarily increased by improving income, improving revenue quality or selling the firm.
Shareholder value is primarily increased by improving income, improving revenue quality or selling the firm. (Image: Thinkstock/Comstock/Getty Images)

Company owners and management attempt to increase shareholder value as a means for enhancing their personal wealth as well as the company's long-term sustainability. Stockholders obviously enjoy seeing the price of shares go up as well, validating their original investment.

Use a number of methods to increase profitability, raise revenue and increase the company share price to ultimately increase shareholder value.

Increase profitability by cutting costs and increasing efficiency. If possible, find ways to reduce employee downtime and outsource non-core functions of the company. Each of these techniques will hopefully improve the net income of the firm and have a positive impact on shareholder value.

Buy back shares that are outstanding on the open market. Share prices abide by the law of supply and demand, with less supply of shares publicly available the price of each individual share will most likely rise. This requires cash from the company's balance sheet but may be worth the cost.

Find new streams or revenue for the company to pursue. For example, if you are an ice cream company that primarily makes sales during the summer, find a way to increase revenue during the winter such as selling hot chocolate. Increasing new revenue streams and total revenue is another important metric investors use to value companies. When revenue increases, shareholder value usually does as well.

Sell the firm if none of the previous tactics have added much shareholder value. New acquirers are usually willing to pay a premium for the right to own or control over half of a company's shares. This premium will raise the value of the shares of the entire company. A bidding war between two potential acquirers will further raise the value.

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