Employees need to understand where they fit in to the concept of a healthy company and why they are so valuable they demand good wages, reasonable work hours and quality of life. Quality of life is not simply for the stockholders, officers of the company or CEOs.
"Returns on Investment"
Stockholders invest monies into a company. There are all kinds of investments made by the 'managing interest' (CEOs, Board Officers, etc.). Some are capital investments and some NEED to be the well being of the people that produce their products or supply their services.
A return on investment does not mean stockholders get all their invested monies back the first year they made the investment. When investors achieve high levels of return they can easily consider their interest returned and abandon their benevolent interest in the company. When investors abandon companies, they can deteriorate and jobs are lost. So, return on investment is important, but, it is never a place where all profit is appropriated.
The longevity of any country's healthy economy is when companies provide good services and/or products along with good service to their employees with longevity.
Along with all these concepts there is the idea of sustainability. These are products and services benevolent to the entire picture including the future as well as the present. This is where issues of regulation and environmental responsibility become reality.
But, the longevity of employment means many things, including pensions. Investments by the company for the comfort of their retired employees after many years of service.
Guess what those pension monies do? They add stability to companies when they 'in turn' invest to provide an income to the pension fund. These are all tried and true standards that provide stability today and into the future. They are important concepts.
Why pensions? Because the elderly and retired provide a huge dynamic to any economy, the promise of a country to quality of life and respect for aging and the longing for a quality aging. There should never be truncation of any of these values for the sake of profits. They are all doable and should be valued.
March 21, 2011
By Ken Favaro and Greg Rotz
For the past 20 years (click here) we have been working with the CEOs and CFOs of large, global public companies, helping them implement management approaches and capabilities, with the explicit objective of generating superior total shareholder returns (TSR). Total shareholder return is a measure of corporate performance. But as we shall see, it is also a system of management, grounded in a set of metrics and practices for running a company to maximize its value creation, over both the short term and the long haul....
1. Total shareholder return. This is the change in a company’s stock price for a given period, plus its free cash flow over the same period, as a percentage of the beginning stock price. For example, if a company has a stock price of US$100 at the beginning of a year, free cash flow of $3 during the year, and a stock price of $110 at the end of the year, its TSR for that year is 13 percent. TSR can be measured only for publicly traded companies because it requires observable stock prices.
In any given year, a company’s TSR doesn’t mean all that much. But when measured over time, it is the single best indicator of success. This is because it reflects how well a company has created long-term value in highly competitive capital, labor, and product markets — markets that are often very short-term-oriented (or that at least feel that way).
2. Free cash flow (from a shareholder perspective). This is the difference between earnings and retained earnings (sometimes called equity cash flow). At the company level, it is the portion of earnings paid out to investors. In a year when a company neither issues nor repurchases equity, free cash flow is simply the dividends paid to shareholders. At the operating level, it is the portion of an operating unit’s earnings that are available to be paid to investors after it takes care of all its other investment needs. In any year when an operating unit’s investment needs exceed its earnings, its free cash flow is negative.
3. Economic profit. This is the difference between earnings and the cost of invested capital for a given period of time. A business that is earning at least its cost of capital is generating positive economic profit; a business that is earning less than its cost of capital has negative economic profit, even if its earnings are positive. For example, if a company has $15 of earnings, a 10 percent cost of capital, and $100 of invested capital, its economic profit is $5 (15 minus 10 percent of 100). But if its earnings are only $8, it has $2 of economic loss (8 minus 10 percent of 100).
continued...
"Returns on Investment"
Stockholders invest monies into a company. There are all kinds of investments made by the 'managing interest' (CEOs, Board Officers, etc.). Some are capital investments and some NEED to be the well being of the people that produce their products or supply their services.
A return on investment does not mean stockholders get all their invested monies back the first year they made the investment. When investors achieve high levels of return they can easily consider their interest returned and abandon their benevolent interest in the company. When investors abandon companies, they can deteriorate and jobs are lost. So, return on investment is important, but, it is never a place where all profit is appropriated.
The longevity of any country's healthy economy is when companies provide good services and/or products along with good service to their employees with longevity.
Along with all these concepts there is the idea of sustainability. These are products and services benevolent to the entire picture including the future as well as the present. This is where issues of regulation and environmental responsibility become reality.
But, the longevity of employment means many things, including pensions. Investments by the company for the comfort of their retired employees after many years of service.
Guess what those pension monies do? They add stability to companies when they 'in turn' invest to provide an income to the pension fund. These are all tried and true standards that provide stability today and into the future. They are important concepts.
Why pensions? Because the elderly and retired provide a huge dynamic to any economy, the promise of a country to quality of life and respect for aging and the longing for a quality aging. There should never be truncation of any of these values for the sake of profits. They are all doable and should be valued.
March 21, 2011
By Ken Favaro and Greg Rotz
For the past 20 years (click here) we have been working with the CEOs and CFOs of large, global public companies, helping them implement management approaches and capabilities, with the explicit objective of generating superior total shareholder returns (TSR). Total shareholder return is a measure of corporate performance. But as we shall see, it is also a system of management, grounded in a set of metrics and practices for running a company to maximize its value creation, over both the short term and the long haul....
...Primary TSR Metrics
These are the four primary metrics to use when managing for top-tier TSR.1. Total shareholder return. This is the change in a company’s stock price for a given period, plus its free cash flow over the same period, as a percentage of the beginning stock price. For example, if a company has a stock price of US$100 at the beginning of a year, free cash flow of $3 during the year, and a stock price of $110 at the end of the year, its TSR for that year is 13 percent. TSR can be measured only for publicly traded companies because it requires observable stock prices.
In any given year, a company’s TSR doesn’t mean all that much. But when measured over time, it is the single best indicator of success. This is because it reflects how well a company has created long-term value in highly competitive capital, labor, and product markets — markets that are often very short-term-oriented (or that at least feel that way).
2. Free cash flow (from a shareholder perspective). This is the difference between earnings and retained earnings (sometimes called equity cash flow). At the company level, it is the portion of earnings paid out to investors. In a year when a company neither issues nor repurchases equity, free cash flow is simply the dividends paid to shareholders. At the operating level, it is the portion of an operating unit’s earnings that are available to be paid to investors after it takes care of all its other investment needs. In any year when an operating unit’s investment needs exceed its earnings, its free cash flow is negative.
3. Economic profit. This is the difference between earnings and the cost of invested capital for a given period of time. A business that is earning at least its cost of capital is generating positive economic profit; a business that is earning less than its cost of capital has negative economic profit, even if its earnings are positive. For example, if a company has $15 of earnings, a 10 percent cost of capital, and $100 of invested capital, its economic profit is $5 (15 minus 10 percent of 100). But if its earnings are only $8, it has $2 of economic loss (8 minus 10 percent of 100).
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