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There’s nothing wrong with operating out of self-interest. All that corruption helped them hit quarterly EPS targets. He can tell you what’s moving in the right direction—and where we’re getting loose and need to tighten up operations. Let’s be candid: That’s part of the job. That’s what Wells Fargo did.
To do that, executives need to rediscover the concept of economic profit (EP) — that is, revenue minus not just operating and administrative costs, but also the cost of the capital needed to produce that revenue.
within large corporations) identified when asked what contributed to, or detracted from, "executive presence" (EP) at their firm. Indeed, half the women surveyed and 37% of the men considered appearance and EP to be intrinsically linked; they understood that if you don't look the part of a leader, you're not likely to be given the role.
While a laudable effort in principle, measuring a company’s tendency to make myopic operating and investing decisions is fiendishly complex. But the other indicators probably pick up legitimate differences in how companies in the sample operate, as opposed to whether they are myopic. On the surface, this measure looks reasonable.
But the strengthening creates a serious challenge for the big American multinationals with large foreign operations. The real problem is that the earnings from their substantial foreign operations are translated back to the home country financials to produce fewer dollars of net profit.
Great stories are credible, simple, consistent, and use both financial and nonfinancial metrics to link a long-term vision and firm values with a distinctive business strategy and focused operational priorities. Bertolini observed that many of his peers had been promising 15% earnings per share (EPS), even during the financial crisis of 2009.
"We're moving towards innovation in technology, pricing, business models and partnerships," explains head of corporate responsibility management, Dorje Mundle, of the company's base-of-the-pyramid operations. Zeitz is also rolling out the EP&L across the holding group PPR.
A friend of mine, Godfrey Sullivan , asked me to consider running the operations for the Americas unit at Autodesk. I was being asked to be the complementary half: the internal candidate would be the outward-facing VP running the Americas, but I would run the internal operations of the $200M+ business, owning the title "revenues manager."
New research, led by a team from McKinsey Global Institute in cooperation with FCLT Global , found that companies that operate with a true long-term mindset have consistently outperformed their industry peers since 2001 across almost every financial measure that matters. The differences were dramatic.
In fact, Amazon was only operating at such a high burn rate because it could. With Amazon, though, nobody emphasizes EPS. Once investors stopped giving it free money, the company quickly cut back on its investments and its losses. By the fourth quarter of 2001 — that is, within about 21 months — it was turning a profit.
Nobody writes a paean to the search for 9 percent EPS growth. It's a strategic and operational straight-jacket. If you believe the best-selling business books from the last 25 years, companies are "In Search of Excellence" or trying to go from "Good to Great." Moreover, pure growth targets are even wackier right now.
Consider management actions such as cutting jobs and investment as a response to currency fluctuations and the resulting accounting impact of those cuts on earnings per share (EPS). Share buybacks are preferred to investment in innovation, entrepreneurship, and value creation. This is a situation that cannot endure.
More specifically, they should compare the forecasts of sales growth rates, operating profit margins, and investment requirements in their cash flow valuation model with the levels needed to justify the current stock price. Some companies buy back shares to boost earnings per share (EPS) by shrinking the number of outstanding shares.
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