Hgu Plc Business Strategy Essay
Shareholders are people who mainly focus on three expectations which can have in a business: High rate of investment return, sustained and increased growth and increase share value. As HGU plc grow a business organically based on growing their customer numbers at the expense of short-term profitability and continue creating a cash outflow, there are three possible effects HGU plc’s strategy could have on its shareholders:
• High rate of investment return
With the organic growth, this strategy is seen as more profit along with a better investment return. It measures the amount of return on investment relative to the cost of investment which all shareholders are seeking high investment return. However, the company seems to continue creating
cash outflow for at least the next three years, so this may cause the risk of investment. As shareholders try to find out the lowest potential investment risks, some shareholders may lose confidence in a company's ability to ensure shareholder profits, so they may divest themselves from the shares.
• Sustained and increased growth
Shareholders normally focus on long term growth and sustainability rather than quick returns. As the company aims to use the expense of short-term profitability, the company may not have ability to cover the expenditures to keep its competitive in the long run. Shareholders may fail as a result of being unable to properly generate profits for shareholders. In addition, with the organic growth route, it usually needs more time to grow and move business forward, so shareholders may prefer more rapid growth of revenue and profits. • Increase share value
This may not meet shareholder’s expectations to increase share value as organic growth strategy takes long time to achieve the company goals and the shareholder's focus is to recoup and gain their investment as quickly as possible. Furthermore, the expense of short-term profitability can lead to the increase of cash outflow and lower profitability in the future. Hence, shareholders may get undesirable profitable return on their investment.
• High rate of investment return
With the organic growth, this strategy is seen as more profit along with a better investment return. It measures the amount of return on investment relative to the cost of investment which all shareholders are seeking high investment return. However, the company seems to continue creating
cash outflow for at least the next three years, so this may cause the risk of investment. As shareholders try to find out the lowest potential investment risks, some shareholders may lose confidence in a company's ability to ensure shareholder profits, so they may divest themselves from the shares.
• Sustained and increased growth
Shareholders normally focus on long term growth and sustainability rather than quick returns. As the company aims to use the expense of short-term profitability, the company may not have ability to cover the expenditures to keep its competitive in the long run. Shareholders may fail as a result of being unable to properly generate profits for shareholders. In addition, with the organic growth route, it usually needs more time to grow and move business forward, so shareholders may prefer more rapid growth of revenue and profits. • Increase share value
This may not meet shareholder’s expectations to increase share value as organic growth strategy takes long time to achieve the company goals and the shareholder's focus is to recoup and gain their investment as quickly as possible. Furthermore, the expense of short-term profitability can lead to the increase of cash outflow and lower profitability in the future. Hence, shareholders may get undesirable profitable return on their investment.