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Increasing shareholder wealth

The value of the company's shares influences shareholder wealth.

Future cash flows will depend on:

  • the state of the economy

  • management

    - they have the ability to affect cash flows and therefore to increase the share price.

Measuring changes in shareholder wealth

Shareholder wealth can be monitored by measuring:

  • Dividends paid to ordinary shareholders

  • Plus

  • Changes in the value of their shares

    - if it is an increase (capital gain)
    - if it is a fall (capital loss)

This measure is called Total shareholder return

Total shareholder return