Differences Between Value And Return Evaluation

differences Between Value And Returnsevaluati

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 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? Submission Details: By Friday, August 28, 2015, in a minimum of 500 words, post your responses to this Discussion Area. Cite the sources used to formulate your opinion. Through Wednesday, September 2, 2015, respond to at least two of your classmates' posts. While responding, think about the activities performed by a firm that would generate value and how this value can be used to generate returns for the firm.

Write your initial response in 300–500 words. Your response should be thorough and address all components of the discussion question in detail, include citations of all sources, where needed, according to the APA Style, and demonstrate accurate spelling, grammar, and punctuation. Do the following when responding to your peers: Read your peers’ answers. Provide substantive comments by contributing new, relevant information from course readings, Web sites, or other sources; building on the remarks or questions of others; or sharing practical examples of key concepts from your professional or personal experiences. Respond to feedback on your posting and provide feedback to other students on their ideas. Make sure your writing is clear, concise, and organized; demonstrates ethical scholarship in accurate representation and attribution of sources; and displays accurate spelling, grammar, and punctuation.

Paper For Above instruction

In the modern corporate landscape, understanding the distinction between value creation and the returns generated from investments is crucial for firms aiming for sustainable success. While these concepts are interconnected, they serve different strategic purposes, and recognizing their differences can significantly influence decision-making processes within organizations.

Value creation pertains to the activities and strategies employed by firms to enhance their overall worth, often through improving efficiency, innovation, customer satisfaction, and brand strength. These activities span the entire value chain, from procurement and production to marketing and after-sales services. For example, a technology company might invest heavily in research and development (R&D) to innovate new products that satisfy customer needs better, thereby increasing the long-term value of the firm (Porter, 1985). Such investments often do not produce immediate financial returns; instead, they build a foundation for future growth and competitive advantage.

On the other hand, the returns a firm gains from its investments refer to the measurable financial gains, such as profits, dividends, and capital appreciation. These returns can be viewed through metrics like return on investment (ROI), earnings per share (EPS), or shareholder value. Importantly, a firm might undertake projects with negative short-term returns if they are expected to generate significant value in the future. For instance, a pharmaceutical company might spend years developing a new drug, incurring losses during the development phase but expecting substantial returns upon approval and commercialization (Kaplan & Norton, 1996).

Strategies for creating value include innovation, operational efficiency, brand building, customer relationship management, and sustainable practices. Each of these strategies aims to enhance the firm's long-term potential rather than immediate profitability. Conversely, creating returns for shareholders involves optimizing existing operations, dividend policies, share buybacks, and financial engineering. While both approaches add to the company's financial health, their focus and timeline differ significantly.

Addressing the difference between adding value in the value chain and creating shareholder returns highlights a fundamental strategic distinction. Value chain activities are primarily operational and aim to improve the firm's internal processes, increasing value over the long term (Porter, 1985). Creating shareholder returns, however, often involves financial maneuvers such as dividend payments or stock repurchases aimed at boosting stock prices or providing immediate shareholder dividends (Brealey, Myers, & Allen, 2017). The former focuses on strengthening the company's core competencies, while the latter maximizes short-term investor satisfaction.

Adding value to the firm and generating returns for shareholders in both the short and long term are vital because they ensure the company's sustainability and attractiveness to investors. Short-term value creation can stabilize cash flow and improve stock prices, attracting investment. Long-term value strategies, such as innovation and brand development, are essential for maintaining competitive advantage and future profitability (Barney & Hesterly, 2019). Balancing these priorities allows firms to remain profitable today and viable tomorrow.

In conclusion, successful firms excel at creating sustainable value through strategic activities that enhance their core competencies and long-term potential. Simultaneously, they employ financial tactics to generate appealing returns for shareholders. Recognizing the difference and the relationship between these two aspects is fundamental to strategic management, overall corporate health, and investor confidence.

References

• Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance (12th ed.). McGraw-Hill Education.
• Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press.
• Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.
• Barney, J. B., & Hesterly, W. S. (2019). Strategic Management and Competitive Advantage: Concepts and Cases (6th ed.). Pearson.
• Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2017). Strategic Management: Competitiveness and Globalization (12th ed.). Cengage Learning.
• Grant, R. M. (2019). Contemporary Strategy Analysis (10th ed.). Wiley.
• Friedman, M. (1970). The Social Responsibility of Business Is to Increase its Profits. The New York Times Magazine.
• Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.
• Jensen, M. C. (2001). Value Maximization, Stakeholder Theory, and the Corporate Objective Function. Business Ethics Quarterly, 11(1), 8-21.
• Edmonds, J. (2012). The Role of Innovation in Creating Long-Term Value. Journal of Business Strategy, 33(2), 15-21.