Corporate Social Responsibility – Why Good Management Practices Is Important
Business is the act of earning money or producing or selling goods and services. Simply put, it’s “any transaction or endeavor entered into with the intent to earn a profit.” In business, a company is a set of individual or corporate agents or representatives who undertake to perform certain tasks to achieve the objects of the business. Those objects are called assets and businesses earn income by engaging in productive activities.
The primary drivers of business activity are profits. If profits fall short of the shareholders’ expectations or if profits lag behind investment and overhead costs, the business will experience losses. Individual investors may become bearish (or concerned about the risk of a loss) and pull their funds from the business. The business loses customers and affects sales and customer retention. Likewise, if overhead and investments are greater than the business’s revenues, profits are lower than the stakeholders’ expectations, and the business becomes saddled with debts.
A business’s value is determined by its tangible assets and liabilities-its total assets and liabilities divided by its revenues. In assessing the value of a firm, two factors are important: the profitability of the firm and its equity-to-assets ratio. A company’s stock price is also an important aspect of its value. Firm valuation therefore revolves around two major factors: profits and shareholders’ equity.
Profitability refers to the ability of a business to earn profits. After all, firms are only able to generate profits when they are making investments and spending money on their own operations and infrastructure. Therefore, businesses must always reinvest in their operations and infrastructure, and pass these savings along to their shareholders.
Equity-to-assets ratios reflect both ownership and minority stake and total equity. All equity holders are included in this ratio, while only a minority stake and number of owners are excluded. The idea here is that the larger the number of owners of a corporation has, the higher the share of the corporation’s profits it can enjoy. Conversely, the smaller the number of owners, the lower the share of the corporation’s profits it can enjoy.
Corporations must also understand and satisfy a number of other business requirements. These requirements are typically referred to as corporate social responsibility. Corporate social responsibility is all about maintaining and building relationships with key stakeholders such as customers, suppliers, employees, government agencies, and other associations and organizations. In fact, social responsibility is now being recognized as an important business goal and one that is highly relevant and needs to be met. The bottom line is that for corporations to meet their profit maximization targets, they must develop, implement, and manage good corporate social responsibility programs.
In terms of financial resources, both domestic and global, a firm must have strong sources of long-term reliable financing. A company’s assets are probably its most significant long-term funding source. In order for a business to successfully manage its resources, it must be able to generate cash flows that will support its ongoing operations. Good cash flow management is important for any business, since it helps firms reduce the risk of financial loss and increase the potentials for profits. Here are some of the key takeaways from this section of the report:
Overall, the current business environment is quite challenging. Although businesses have the ability to manage their own financial resources, the need for outside capital increases with business growth, especially in times of economic uncertainty. For this reason, companies are encouraged to develop effective corporate social responsibility programs, which will help them meet their profit objectives and reduce their risks. Here are some of the key takeaways from this report: