ACCA Strategic Professional · Advanced Financial Management · Strategic business and financial planning for multinational organisations
A multinational's board sets the objective of maximising shareholder wealth. Which of the following is the most appropriate measure of progress towards this objective over a multi-year planning horizon?
Total shareholder return is the best measure because it combines dividends and share price change, which are the two components of shareholder wealth. EPS, revenue growth and liquidity ratios can improve without increasing the wealth of shareholders.
- AGrowth in earnings per share
- BTotal shareholder return (dividends plus share price change)Correct
- CGrowth in reported revenue
- DImprovement in the current ratio
Explanation
Shareholder wealth is created through dividends and capital gains, which total shareholder return captures directly. EPS can be raised by accounting choices or higher-risk borrowing without creating value. Revenue and liquidity ratios do not measure returns to shareholders.
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