Summary :
- Understanding business economies of a company relating to:
- Business model used, including customer needs & attributes;
- The supply chain;
- Competitive positioning;
- Company’s operational design & effectiveness all within larger societal setting;
v Any business is a system of financial relationships and cash flows which
are activated by management decisions over time.
v
v Business has infinite variety like- Manufacturing
-
Trading
-
-
Service institutions, etc.
with
different legal structures, like - Proprietary
- Partnership
- Company
- Non-profit
As an Analyst or
Banker, we need Value creating Organization/company because, earning
profit by investor/bank completely depends on profitability of the company.
2. Value Creating Company
Key attributes of a successful
company are:
Purpose, System, Optimisation,
Achievement, Rewards
i. Purpose:
defined as an organisation in which management has achieved integration of
the interests and actions of its key stakeholders, that is, Shareholders, Managers, Employees, Customers, Suppliers,
Creditors, & Community;
ii.
System/policies:
this integration is based on managing
through sound decision-making, business-system, economic trade-offs, implicit
in this system;
iii.
Optimisation/activities: company achieves, as nearly as possible, an
optimisation of the system’s performance over-time driven by
- a sound business model,
- strategies with a sustainable
competitive advantage,
- superb operational execution;
iv.
Achievements:
this optimisation resulted in
achieving positive cash flows as well as expectations of future cash flows
pattern that exceed the cost of capital;
v.
Rewards: eventually, this will provide
- superior returns to shareholders,
- superior rewards for managers & employees,
- excellence in customer satisfaction,
- first rate performance & loyalty from suppliers,
- superior credit relations for company.
Value Creating Company
requires several Supportive Management Practices,
like,
-
Sharing of relevant information by entrusting people at all levels for sound decision
in the interest of value creation,
-
Decision support by financial staffs as
ü an attitude of business advisor and
facilitator of decision support,
ü as business consultants working
closely with the line managers to make appropriate trade-offs, and
ü making non-financial managers to
understand principles for profitable decisions but not to simply delegate the
analytical aspects to experts.
- Accounting Vs Cash (economic data) by clearly defining results in terms
of accounting for reporting & by analysing dynamics of Cash-flows for
decision-making which are recognised as the real key to building value.
3.
Financial/Economic Analysis of Business- Why required
I.
The
process in understanding the financial implications and economic trade-offs.
II.
Understanding
business economies of a company relating to:
Ø Business model used, including customer needs &
attributes;
Ø The supply chain;
Ø Competitive positioning;
Ø Company’s operational design & effectiveness all
within larger societal setting;
Ø Insights about the specific contributions &
requirements of the various stakeholders;
Ø The obligations the organization owes;
Ø To identify and prioritize key value drivers that are
essential to the long-term success of the business;
Ø Value drivers can be:
- sustainable
cost and/or quality advantage,
- technical expertise of a product
development team or a group of service
providers,
- attribute of the business model which
is hard for others to emulate, etc.
Focus: |
Macro |
Sector Expertise: |
All |
