1. Define the terms ‘customer value’ and ‘shareholder value’. Discuss its importance in terms of need for management accounting information while making business decisions.
Answers
Define the terms ‘customer value’ and ‘shareholder value’. Discuss its importance in terms of need for management accounting information while making business decisions.
Answer:
Explanation:
Customer Value can be defined as the level of satisfaction experienced by customers towards a business.
Customer value is the perception of what a product or service is worth to a customer vis a vis the possible alternatives. Worth means whether the customer perceives that they have received benefits and services over the price paid.
Communicating value and establishing customer value is critical due to the fact that the results of a company's efforts to create value are measured in the customers’ perception of that value.
Shareholder value is the value delivered to the equity owners of a company as a result of management's ability to increase revenue, sales, and cash flow, which in turn leads to an increase in dividends and capital gains for the shareholders.
The management of a company needs to create shareholder value. The management needs to strike a balnce when creating shareholder value.Often, difficult trade offs have to be made. For example if a company charges too much they might make their customers to turn to competitors. On the flipside, if they charge too little, the company might be unable to meet its financial obligations.
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