Looking forward in time, as your company achieves your most important strategic goals, chances are good that you will begin to generate significant cash.

In the real world, when management is presented with large cash flows, it prefers to spend the money rather than give it back to shareholders. Management might enter a new market, buy a promising startup, acquire a competitor, splurge on a corporate jet, or push for higher salaries and bonuses. Owners generally resist such moves. They use performance measures and the authority of the board of directors to control financial structure and keep management in check.

The struggle between management and owners varies from company to company. A major factor in the outcome is the degree to which ownership is concentrated. Your situation in the simulation would be comparable to a wholly owned subsidiary or to a company with a very large voting block of conservative stockholders. You cannot do any of the things managers love to do. Instead, you must maximize the present and future wealth of the owners.

This section, which discusses financial structure and performance measures, will assist you in your policy decisions.