Question

Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.

Answer 1

Answer:

The aim of financial management is the maximization of shareholder's wealth. Shareholder's wealth takes into consideration dividend payments and capital appreciation to the shareholders.

The concept of stakeholders take into account shareholders, customers, suppliers, employees and workers of an organization and is thus a wider concept.

Focusing merely upon current stock value i.e current market value is short sightedness from the point of managers. Managers should rather focus upon long term implications of the projects and financing decisions.

More attention should be assigned to the long term performance and efficiency of a firm with respect to dividend and investment decisions which cast a long term bearing on the operations and performance of a firm.