The never-ending buying and selling activities of shares in the Exchange sets an investor thinking. What is the meaning or the root cause behind the upswings and downswings in the prices of shares? Which is the base from which the prices take-off and then plummet, again to take-off? Legally speaking, a shareholder's equity is the value of one's owned stock within a company. Taken as a whole, it is equal to the firm's total assets minus its total liabilities. It belongs to many categories. Some of them are common stock, preferred stock, capital surplus, stock option, treasury stock and retained earnings. The popular one is common stock, which is traded in the Exchange. Preferred stock holders have some special legal privileges. They are paid dividends first, and get precedence over common stock holders in case of liquidation of the company.



The quoted price of a share in the Exchange normally should be its correct valuation. It is the accepted price by the traders; otherwise they would not have bought and sold shares at that level. The price fluctuates often, depending on many extraneous considerations, sometime the beyond the comprehension of an ordinary investor. The value can fluctuate depending on the company's internal policies. Some deliberate measures are taken by the management of the company which will affect the prices of the shares. The company may buy back shares from the shareholders and put them into the firm's assets. This is done to build the confidence of the investors, when the management of the company feels that the shares are undervalued. The Government policies and the new accounting rules may also affect the value of the shares. The amended rules necessitated pension funding and other post-retirement benefits of the employees to be included in the balance sheets of the company.

In the changing context of the business strategies due to mass expansion and the internet revolution, PE firms employ generic and non-traditional strategies to ensure enough ROIs. The idea is to create the maximum value. The important strategy is differentiating. This is the critical procedure adopted by a firm to create value. This is the direct outcome of the benefits of technological advances. PE firms are equipped to provide the global expertise. The result is better and larger investments based on domain knowledge of the fund managers. The synergies are the result of new processes the PE is able to introduce in the working of the companies. Operational efficiency means more profits for the company. More profits mean more value.

Restructuring

A firm leaner in structure is the hallmark of the PE backed firms. This is achieved by financial reengineering that will affect the bottom-line and get better performance .PE firms bring innovative products into the portfolio of the company. When working capital is reduced, asset effectiveness is achieved. Investment can also be done to create better assets. The most important restructuring initiative is to change the power structure. The objective is to eliminate bottlenecks and inefficiencies. The employee's performance is suitably rewarded and executive salary is linked to performance improvements. Motivation and inspiration will bring forth good results and the organization will achieve added strength.

Better management focus

The global expertise available with the PE firms would make it possible to manage the firms better. Key industry experts are inducted on board. These are business and technical stalwarts and they are able to perceive what the best option for the company is. PE firms create leverage for the management to have high pitched ambitions and encourage long-term initiatives. Through the hand-holding process at least in the initial stages, they watch the performance of the management from close quarters and see whether the promises are fulfilled.

Once the will is generated at all levels, from the board to the workers, once a healthy, competitive and challenging environment is created, all-round progress becomes an attainable reality and this will have beneficial effects on the equity value of the company.