Sunbeam: Balance Sheet and Shareholders Wealth

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To put it simply, in financial terms, to maximize shareholders wealth means to maximize purchasing power. Throughout the years, we have learned that markets are most efficient when the company is able to maximize at the current share price. Every company’s main goal should be to strive to maximize its value to every single one of their shareholders. Common stock represents the value of the market price, and it also gives the shareholder an idea of the different investment, financing, and dividend decisions made by that particular firm.

When it comes to the Sunbeam case, I think that in the beginning, June of 1996, Albert Dunlap definitely succeeded in maximizing shareholders’ wealth. It seems to me that he was more of a short term guy, considering that in the long run everything ended up backfiring. Sunbeam used a sketchy approach when it came to their accounting practices, and in turn the company was able to report higher revenue in the accounts receivable column. So, since they were able to report higher revenue they were also able to make it look as if their quarterly earnings were significantly increasing.

Like I stated earlier, in the beginning Dunlap was able to substantially maximize the shareholders’ wealth of Sunbeam. By 1997 he was able to open ten different factory outlet stores. The main goals of the factories were to increase brand awareness of the company, increase sales, and most importantly maximize shareholders wealth. These changes were all made by Dunlap within in the first seven months of taking over the company. By then the stocks had increased by 284 percent, to about $48 a share.

About a year and a half later, in 1998, Dunlap announced plans to buy three consumer products companies. He bought out Coleman, First Alert, and Signature Brands. Just a few short days after the announcement, Sunbeam’s stock closed at a record high of $52 a share. Now comes the beginning of the end. By June 1998, the stock prices had fallen to...
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