Your Business Performance Analysis

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P Satya

26 Mar 2023

Summary :
  • superior returns to shareholders,
  • superior rewards for managers & employees
  • excellence in customer satisfaction
  • first rate performance & loyalty from suppliers
1.    Concept of a Business Operation:

v  Any business is a system of financial relationships and cash flows which are activated by management decisions over time.

v  Process of managing any enterprise:

Economic Choicesàtrading off costs & benefitsàshifts in physical & financial resources supporting the businessàshifts cause movements of cashàfinal economic result.

v  Business has infinite variety like-   Manufacturing

-     Trading

-     Financial

-     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.

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P Satya
Focus:
Macro
Sector Expertise:
All