Several factors, both internal and external, impact a company’s stock price and the subsequent
perceived valuation of a company. Sometimes that perceived value matches that of the financial
statements, and other times it is vastly different. Therefore, discuss the factors that lead to a
valuation of a company’s worth compared to that of the financial statements and how company
executives create the most value for all stakeholders.
Internal and External Factors
The stock price is often seen as the valuation of a company. However, there are many factors,
internal and external, that are affected and reflected in a company’s stock price. According to
(Wolski, 2019) five factors that affect the stock market. These factors include internal
developments, world events, inflation and interest rates, exchange rates, and hype. World events,
such as the terrorists’ attacks against the United States on September 11, 2001, left investors
wanting to invest in stock with fewer risks, hence buying fewer U.S. stocks. As previously
discussed, a company’s valuation is often seen through a business’ stock price. Since each
business is unique, so are the methodologies used to determine business value. One’s company
must take into consideration the company’s ability to profit, know its customer, as well as its
efficiency, products/services, current and former economic conditions, expected growth, in
addition to other factors. The process will more than likely include a review of the company’s
financial statements and other internal documents, and a marketplace analysis with a competitive
assessment.
Company Executives Creating the Most Value for Stakeholders
Executives can create the most value for stakeholders by making sound financial decisions.
Keeping all stakeholders in mind is an excellent benefit to profitability as well as the company.
Making decisions for the long term and not just for temporary solutions is another aspect of
References
McKinsey & Company. (2011, March 19). A better grasp of how value is created will help
executives resist short-term pressure. Management Innovation eXchange.
https://www.managementexchange.com/blog/better-grasp-how-value-created-will-help-
executives-resist-short-term-pressure
optimizing value for the stakeholder. Creating new and innovative ways to draw the attention of
potential investors or current investors can also be very beneficial to the business. Executives are
the catalyst to any financial situation, be it good or bad. According to (McKinsey & Company,
2011) “at different stages of a business’s life cycle, different owners will be able to create more
value. A family business may serve the company well in its early days. Still, a venture capitalist
might be the best owner to expand it, and a multinational when a global distribution is required.”
Conclusion
In conclusion, a business valuation can help uncover what needs to be done to strengthen the
business and ensure its long-term viability. It can also help one identify ways to increase the
value for the company and make the business more attractive to potential buyers. If one is
considering selling to internal or external buyers, an appropriate business valuation is needed for
the ownership transition to be effective and successful. Whether one is considering transitioning
the ownership of the business now or in the near future adjusting and enhancing making business
decisions, the company’s valuation will serve as the most beneficial tool as it creates discussion
to optimize situations for all stakeholders.
Wolski, C. (2019, February 12). Five Factors or Events that Affect the Stock
Market. CHRON. https://smallbusiness.chron.com/five-factors-events-affect-stock-
market-3384.html
