Market CapAt a big picture level, issuing stock quickly raises capital and makes it easier and quicker to achieve strategic goals. Differentiators can introduce new products. Cost leaders can improve productivity more quickly.
Linking Financial Structure and Performance Measures to Strategy and Tactics
Financial structure and performance measures are intertwined. Suppose you were given these performance priorities:
| Measure | Weighting |
| Cumulative Profit | 30% |
| Average Market Share | 30% |
| Average ROS | 0% |
| Average Asset Turnover | 0% |
| Average ROA | 0% |
| Average ROE | 0% |
| Ending Stock Price | 0% |
| Ending Market Cap | 40% |
| Total | 100%% |
Compared with an average company, how would your tactics be affected?
| Invent a new product? | Yes. More products make it easier to achieve high market share. |
| Reduce price? | Probably, because it would drive up sales, and if we can hold ROS constant, our absolute profit must increase. |
| Add automation? | Possibly. It could improve profits, and if we drop price, we can increase sales. |
| Add capacity? | Yes, as needed. We would hope to drive up demand. |
| Increase promotion and sales budgets? | Yes, to drive up demand. |
| Abandon a segment to concentrate on a niche position? | No. |
| Harvest an old product? | Doubtful. |
| Would you grow the asset base in general? | Yes. A large asset base drives up sales. There are no inhibitions on asset growth in these measures. |
| Issue stock? | Yes. |
| Pay dividends? | Perhaps, but you are not powerfully motivated. So long as stock price is maintained, you can raise adequate new equity through stock issues. |
| Add debt? | Yes. |
Over time, the financial structure these measures tend to produce will create a large, relatively inefficient company.The struggle between management and owners varies from company to company. A major factor in the outcome is the degree to which ownership is concentrated. Your situation in the simulation would be comparable to a wholly owned subsidiary or to a company with a very large voting block of conservative stockholders. You cannot do any of the things managers love to do. Instead, you must maximize the present and future wealth of the owners.