3. ADMINISTRACION DE USUARIOS
3.1.3 Configuración de Servicios (Paso 3 de 4)
The past 20 years have seen what amounts to a technological revolution. This has been described as an information revolution on a par with the industrial
Summary
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revolution of the 18th and 19th centuries. It is now most unlikely that decision makers will not have access to computer facilities and the power of the typical desktop machine is now such that sophisticated software can be used to aid their decisions. In most cases the type of software used will be based on spreadsheets such as Microsoft Excel and you are encouraged to use the software available to you when answering the problems set throughout the text. However, it is important that you understand the underlying principles so it is not advisable to rely solely on the financial functions embedded in the software. It is also worth mentioning that some of the functions can be somewhat problematical as we will see.
The decision process consists of three elements: 1. a series of perceived alternatives;
2. an expectation that these alternatives are not all equally desirable in terms of attaining an objective held by the decision maker;
3. a common value base, related to the objective, by which the alternatives may be compared.
As far as financial management is concerned, it is assumed that the objective of financial management decision making is the maximization of shareholder wealth. This is normally translated to mean maximizing the current worth of the company’s shares.
Given that shareholder wealth is seen in terms of an ability to consume goods and services and that it is cash that provides consumption power, so share value can be maximized by maximizing the sum of the expected stream of dividends through time generated by the share.
Accounting profit is essentially an inappropriate concept within the context of financial management decision making because it is a reporting device, not a decision-making device. Finance decisions are economic or resource allocation decisions and the economic unit of account is cash; hence decisions are evaluated in terms of their cash flow impact. However, the reported profit impact of financial decisions remains an important consideration in terms of the correct communication of management’s actions to shareholders and others.
Notes
1. Be these large stock exchange quoted companies such as BP or Unilever, or small unquoted companies such as a local printing company or car rental company. 2. The terms decision ‘making’ and decision ‘taking’ can be used synonymously. However, the term decision ‘making’ will be used in this book because of its more positive emphasis on deliberate creative action.3. We will carefully define just what financial decisions are, but for now this covers such things as a decision to invest in a new machine, to borrow money from the bank or a decision to ‘pass’ (i.e. not pay) an annual dividend that shareholders may have been expecting.
4. There are many variants of capitalism (which in itself is just one type of economic system; for example, alternatives could include socialist, feudal and primitive communal economies) but its two general features are the private ownership of property and the
allocation of the economy’s resources (land, labour and machinery) through a supply and demand price mechanism.
5. Indeed, we shall also occasionally allude to the psychological processes behind firms’ financial decisions where conflicts of interest arise.
6. In a way, in specifying this second necessary condition, we are ignoring the situation where a decision has to be made, even though this second condition does not exist. For instance, if you are out for a walk with no particular destination in mind and you come to a crossroads, a decision has to be taken on which direction to take, even though the second necessary condition is really unfulfilled. Such situations are of little interest as far as the decision process is concerned; we could call them indifference decisions. 7. For the present, we shall ignore the possibility of multiple objectives, although we shall touch upon it later. However we may observe that where multiple objectives exist in real life, one objective is often regarded (either implicitly or explicitly) as being of overriding importance, with the other objectives acting as constraining factors or considerations.
8. In abstract terms we can define a company as a collection of assets. The owners of the company have therefore pooled their funds to assemble such a collection and are logically only likely to do so in order to bring benefit (either directly or indirectly) to themselves.
9. The term ‘privately owned companies’ can be a source of confusion. It refers to all companies that are owned by individuals, either singly or collectively, whether or not they are ‘publicly quoted’ (plc) on a stock exchange or otherwise. Thus both public and private companies (in financial nomenclature) are privately owned companies.
10. See, for instance, Ivy Papps, Government and Enterprise, Hobart Paper No. 61, Institute of Economic Affairs, 1975.
11. We shall be ignoring the effects of inflation until later.
12. This is obviously a simplification, as in practice each share has two equilibrium prices, a buying price and a selling price. The former will be the higher of the two, and the difference constitutes the market-maker’s ‘turn’. However, for simplicity, we will ignore this complication and use a ‘middle’ value.
13. Of course, if the company’s shares are not quoted on a stock exchange, then the objective simply reduces to the maximization of the value of the company’s shares. This, however, still leaves the problem of how the shares are to be valued. In fact they should be valued on exactly the same basis as quoted shares: the future expected dividend flow. It is one of the great advantages of a stock market quotation that this value is ‘automatically’ and continuously provided for use both by management and by investors.