27 May M1 (Instructor Response)
NEED RESPONSE TO INSTRUCTOR:
ORIGINAL ASSIGNMENT:
Assignment 2: Discussion—Differences between Value and Returns
Evaluating the benefit an opportunity can provide is complex. When measuring an economic benefit, you must look at the real return, the nominal return, and the overall value. In many cases, a project might generate a negative return in the short term but may be of value in the long term. You may take on a project for its business, knowing that the project is a losing proposition but will compensate for this loss by bringing in a new project later that will generate a positive return, or future value. This assignment will illustrate this concept. Firms need to distinguish between value creation and the returns they obtain from their investments.
Tasks:
Locate an article from the Internet or the Argosy University online library resources that deals with firms distinguishing between value creation and the returns they obtain from their investments. You can consult sources such as the Wall Street Journal, Financial Times, Bloomberg Markets, the Economist, US News and World Report, and other publications for conducting this research.
On the basis of the selected article, address the following questions:
- What are some of the strategies that firms engage in to create value?
- What is the difference between adding value in the value chain and creating returns for shareholders?
- Why does adding value to the firm and creating returns for shareholders in the short run and long run matter?
MY RESPONSE:
All firms’ regardless of their size or area of operations have different strategies for creating value. Some of the strategies for creating value are discussed below. There are four strategies that a firm can use to generate the value of a product. First is the changing the form of the product so that it can be useful to the customers (Trotta, 2016).
When raw materials are converted into finished products, the customer can have the opportunity to use the product to satisfy their wants. Secondly, the firm can avail the goods to the right places through transport so that when the customers need them, it is readily available for use. When companies transport the goods to where the customers can quickly get them then a value is created (Velamuri, 2013).
The third way to create value is through storage; the firms can keep the goods at their warehouses so that the customers get access when their demand arises. Customers always buy goods when the need arises, and the companies need to avail the goods at the store to cater for the demand. The last strategy in creating value is a change of possession. The goods produced by the firm are then sold to the customers so that they can have the opportunity to enjoy the products and services (Trotta, 2016).
When talking about of adding value, it means making the product more useful so that it satisfies customers better. While creating returns to the shareholders is making the gods sellable so that the shareholders can get interested in the capital they invested in the firm. Secondly, value creating makes the goods more useful to the customers in that they derive more satisfaction from the final product they finally received. On the shareholder’s side, the pleasure is derived when more sales are made and the profits generated are distributed to them in the form of interests (Trotta, 2016).
Finally, value-added is quality based while a return to shareholders is quantity base. In the first incident, the firm strives to come up with a product that is of increasing quality so that the clients are retained in the firm. The concern is preserving the customers. On the other side, the interest is not on the person who brings the profit to the firm instead it is the amount received regardless of the financial effect on the customers (Velamuri, 2013).
Adding value to the firm in the short run is very important since it is a strategy that can be used to retain the customers to the firm. The firm needs funds to run its operations, and the only way to get the money is through meeting the needs of the customers (Velamuri, 2013). Quality products always fetch good money to the firm that is sufficient to help in its daily operations.
On the shareholder’s side, they are the contributor of this capital. Therefore, they have to get the yield of their contribution. The firm has to strike a balance between satisfying the customers, making good sales to get funds and meeting the needs of the shareholders so that they do not withdraw their capital prematurely (Trotta, 2016).
References
Trotta, R. (2016). Translating strategy into shareholder value. New York: American Management Association.
Velamuri, V. (2013). Hybrid Value Creation. Dordrecht: Springer.
INSTRUCTORS QUESTION:
Do you know of companies that maximize their value through the storage process? Are there any that use this as their main strategy?
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