Everyone knows the importance of cash flow in motivating shareholder value optimization. But most of the corporate officials fail to give due importance to earnings per share. They do not give priority to cash flow optimization which ultimately short-changes shareholders.
However, any wise financial director understands today how vital is it to study cash flow trends before they borrow from a bank or invest in market.
What today dominates in this regard is emphasis on sales and earnings and cash flow optimization takes a back seat. Today’s dwindling market situations have led to huge depreciation in cash value. Very few shareholders now come back in case a company’s return on cash is low. Thus if any business firm returns cash to its shareholders instead of investing in various sectors, they regard it safer place to put their money.
A large amount of working capital, however, is likely to give negative return. Therefore, a wiser focus on cash flow and ways to optimize cash consumption and working capital will better push toward achieving best shareholder value.