Financial Portfolio Strategy - Maximus Inc

Financial Portfolio Strategy

In a competitive and challenging business environment, strategic planning has become a primary tool for evaluating and coping with uncertainty. At the corporate level, strategic planning has a portfolio orientation. The aim of corporate strategy is to maximize shareholder value by realizing an adequate rate of return for bearing investment risk. Shareholder value is created when companies are able to generate free cash flow in excess of the shareholders' investment in business (De Wit & Meyer, 2005).

A persuasive reason for focusing on creating shareholder value is that companies that failed might be faced with threat of corporate takeovers (Shapiro, 2006). In contrast, maximizing shareholder value provides the best defense against hostile takeover and premium stock price (Shapiro, 2006). Further, companies that create shareholder value can easily attract capital financing to pursue growth. Hence, the financing and investment decision making must focus on adding as much value as possible to the company.

The objective of this analysis is to design a portfolio that reflects financial strategy for Maximus Inc., a manufacturing company. The strategic decisions are based on financial theories which aim is to create shareholder value by earning superior returns on capital invested in the business. Business valuation methods serve as clear guidance for management to develop an optimal portfolio, which is to minimize the risk of an investment for a desired level of expected returns. The following discussion includes company background, the creation of shareholder values based on the financial theories, the application of business valuation methods, the financial planning based on financial strategy model, and the structure of capital investment.

Company Background

Maximus, Inc. was established in 1999 and the company specialized in producing high quality precision machinery, which mainly used as a measurement tool with diameter tolerances of 1µm. The company currently provides employment to nearly 500 workers, and the size of the company categorized the operations as a small manufacturer. In the early years, the company failed to meet performance targets, which resulted in small or no dividend payouts. However, recent payouts have been consistently in the double digits, and occasionally exceeding 15%. Unfortunately, shareholders have some doubts if Maximus' performance justifies this level of payouts. Recently, Maximus received a large cash infusion for $10 million.

Maximus recognized the need for a strong employee shared mindset about strategic and competitive goals of the company. Maximus sets out to adopt the core values that were drawn from the company's mission statement and to build a unity around these values. The company believed that the adoption of core