How is a shareholder's capital managed?

In fact, a shareholder's capital is the most difficult to manage, since it is not only a question of justifying efficiency by lowering the costs and expenses associated with its activity. In the end, they are the ones who risk their resources, according to the corporate purpose. The only thing they expect in return are their dividends and that what they have invested maintains its value over time. Therefore, it requires skills that include what they call "good sense of smell". These are valuation exercises, risk-return scenarios and a great deal of creativity.

Now, what would be the profit margin a shareholder expects? It should at least exceed that of a conventional investment in financial products with little or no management. It also depends on the sector in which the company operates. So that management requires revenue diversification, cost optimization and good working capital flow management.

There is data on margins parameterized by sectors such as food, entertainment, tourism, health (prevention and care), services, industry and energy. These margins are derived from the average and from that point, the different players compete to offer an excellent product or service with added value. There is also the "financial gymnastics", where the movement of resources is portrayed in order to place assets and liabilities where they belong.

Read more about shareholder's equity

In the absence of growth opportunities and having excess resources, the last option would be the distribution of extraordinary dividends, because it could be interpreted, at best, as limiting management's creativity.

Being liquid could be profitable, but waiting in time can become costly. This is how well-known entrepreneurs have opted to carry out share buybacks in the market, with the prior permission of the regulator. In the end, this has one objective and that is to increase the intrinsic value (equity or book value) of the shares that remain outstanding.