The methode of returning cash to company shareholder - Essay Example

Non-core operating assets like long term investments and related assets are not critically relevant for a firm's current operations. When Marks & Spencer (M&S) finally disposed of some of its non-core operating assets in 2002 and began to restructure the company, the decision was obvious because it wanted to adopt an alternative technique for the more traditional method of repurchasing shares or that of the increased dividend pay-out. In other words there was a clear effort on the part of M&S management to redistribute revenue to shareholders though its negative implications would have invariably affected the success of the program (Davies, 1999).

According to financial managers' own way of thinking such efforts would not be in the best interest of the long term company value creation process because when such cash returns to shareholders take place at regular intervals in the future as the stock prices appreciate and hectic deposal of shares takes place, the company would lose its investor confidence. The net result thus would be to jeopardize the very relationship between the manager and the shareholder. This in turn would lead to a much closer relationship between the manager and the debt-holder. . Debt instruments often consist and includes restrictions on the company's all the activities.

And thus it is preventing and disturbing top management from pursuing alternative financing options and core business opportunities.Large companies always consider debt-equity ratio as a risk because the company is more concern towards lenders and investors. And thus the business is limited as to the amount of debt it carries (Marks and Spencer annual report 2002).For the better and efficient financing companies are usually pledge assets of the company to the Lender as collateral. And the share holders and executives of the company are in some cases required to give guarantee by personally for the repayment of the loans (Devaney, & Lizieri, 2004).

Because of this capital restructuring programme marks and Spences certain advantages to their managers can be expected. because of the less liability of the company the managers will enjoy a greater power in all the operational actives. Thus it brings less liabilities to their company so it will be a greater relief for the managers. (Finlan, 1992)But it would certainly demotivates their share holders because they will loose their voting power and the opportunity to take part in the decision making process.

So this fact can leads to a morale problem of the share holders.In every company, the financial and real sectors cooperate with each other in order to maintain a sound and progressive balance between the two. This is important as a deficiency in one sector impairs developments in the other sector. So therefore it is important to have an optimal capital structure in the company to maintain the balance between equity and the debts.The value of corporate debt