Management makes Money or Vice Versa?

Published by MBA Skool Team, Published on October 09, 2015

Good Morning News – Facebook hires two IIT-B students at 1.42 crores!

It’s common these days for students bagging up a million package from the premier institutes. But what is the company looking for? Extraordinary person who can quadruple their customer base or the magician who can develop and innovate a new product or service for the company? Questions like these all settle down to the core of any company – Money. Quite rhyming! But these decisions of scoring well in the market, get the top recruit and projecting profits is all dependent on the Management. The management has to start from the bottom of the pyramid and scales up to the big designations.

Talking about the board – who monitors the activities internal and external to the company so that their positions are secured. The board members are always engaged in one or the other headlines whether their company is growing, stagnant, declining phase; how did that happen? Ask the board, with the highest authority of accepting the proposals, or of a deal of Merger & Acquisition or even a lay off phase. The composition of the management determines the fate of the company. It’s not the Zuckerberg who is making the Facebook earn Billions alone – it’s the team overall. In context of Indian companies – there has been a series of exits of the top CXO’s of well setup startups and that impacted their financial performance as the decision couldn’t be passed, their more concern was of the replacement. Main reason of the failure of 90% startups (Forbes) is because of lack of management deployment. Management is composed of CEO’s, CFO’s, COO’s but the firm grows when the board work on their business and not in their business.

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But it’s always a team effort citing example of the recent Infosys CEO appointment Vishal Sikka; whose effect was shown in their FY16Q1 revenues their fastest growth in 3 years ($476 million). Well we cannot ignore the rest 179,522 employees in the company but the significant increase in the revenues can’t be ignored either. Well the decisions are the ones which at the top level instills confidence down the hierarchy and hence are projected on their financials.

Fundamental Analysis of a company involves around 80-85 percent of their research based on the company financials. It will start off with the Balance sheet going forward to the Income Statement & Cash flows and reach the valuations. These valuations or the ratios that is covered indicate the financial position of the company defined by the numeric value of their Book Value and the Multiples. Well the math do looks good, but will be the projections be the same (even near) as the actual financials. Financial data are not recommended to be pounded just to get the nearest value as there will be a huge number of people following the same – investors, shareholders, employees, brokerage firms, banks and the regulatory firms. Those reports citing the financials will have an impact on the overall business, crucial and might make or break the case for the future of the company.

Here is where the assumptions comes into the picture – which is mostly on the Economic Analysis, Industry Analysis, more importantly on the news from the Management. These are necessary inputs for the financial performance of the firm’s report as it impacts the market, the expectations are presented by the member of the Board to have authenticity and promises to get fulfilled. Suppliers, Buyers, Hiring, Technology and many more things are involved for the management to discuss and analyze their historical and projections financially. At the outset you see the work progresses from the officer level to the general manager scale and goes up to the board room. But in reality the fruit falls and then the tree grows. Smallest to smallest decisions are made by the board. It might go on either way and held up the responsibility for the actions and are the ones to be questioned when asked.

The financials are crucial for the company, every department & division, vertical, subsidiary, etc. is functional because there is money, which is the source of the global functionality. Business firms are vessels for their employees to make money and it can up having an impact on the nation’s economy as the things go on to a large scale by accomplishing their personal goals before their company objectives are fulfilled. The times when the reverse happened, sever impact occurs in the organization and hence management are the ones to be called for. These decisions are taken by the board to strategize in each role of marketing, finance, operations to go around well good on their financial health and in return a adding longevity to the firm.

This article has been authored by Sachin Sethi from SIBM Pune

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