Value management company. 11-2

Hello.

Measuring the performance of a company based on value.

Smoothing the spread of the return on capital.

Continuation of previous post.

There are two groups of factors.

One group of factors is related to the specifics of the company.

These are the company's growing illnesses at different stages of life, the core competence of the company, its specific strategic skills, and the unique intellectual resources it has. Factors of company size also affect the process of falling and these factors can be quite contradictory.On the one hand, a small company can remain flexible, maneuverable, it can react faster to different market changes than a large company.

And from this side the size of the company can be a positive factor, that is, a factor that slows down the process of falling, stretching the period of smoothing. On the other hand, it is difficult for a small company to borrow, attract additional financing, and almost every small company seeks to grow.

Large companies will also have a controversial size. Plus a large size can be considered easier borrowing, a large company has a lot of assets, lenders easily provide large amounts of financing.

On the other hand, in a large company there are many more different bureaucracies, coordination, coordination of different units, it can not be as flexible and maneuverable as a small company and because of this can incur additional costs, and this can be considered a minus of a large size. As I said, the size of the company can have a different effect on the problem of the spread of the yield spread, it can be positive and negative. If the company has a unique business model, an innovative approach to business that is absent from competitors, then this will be a positive factor, the speed of smoothing will be less.

The second group of factors is related to industry specificity.

If, for example, talking about high-tech industries, the problem for the company may be the need for constant investment in research and development. the company must constantly update its assets.

And investments can not immediately bring high returns and high results, and technological innovation can be a heavy burden for the company and will help reduce the spread of yield.

Negatively affects the company and the volatility of markets, because there are problems in dealing with suppliers, customers and personnel in an unstable environment.

Now I will try to generalize the cycle of economic profit and show what is happening to it.

To begin with, it should become positive, and therefore, it is necessary to increase the spread of yield on capital, then the period of smoothing begins.

If the company does not manage to slow down the process and stretch the smoothing period, it quickly rolls down to the period of the decreasing spread and further to the negative spread.

At the first stages of the economic profit cycle, it is necessary to seriously invest in assets, look for new business ideas, look for interesting business models for the company, the company's task is to use these growth opportunities in this part of the cycle.

But the stage of smoothing is inevitably coming, a new stage of the declining spread begins, and the company must take serious retaliatory measures. At this stage, you need to optimize investments or reduce them, because the task of expanding business now is not worth it.

The task of the company at the stage of smoothing is to increase the yield on those assets, to the capital that it already invests in and competently manages the costs.

Thank you.