Deciding how (and when) to reinvigorate growth now ranks as a CFO's biggest challenge.
Kate O'Sullivan, CFO Magazine
May 1, 2010
I once heard someone say, "you can't cut your way to success". This is great reminder of that. Also to make small best on the future is solid advice. A recent Harvard Business article talked about a balanced approach to increase your odds of coming out of recessions - careful best on future, laser focused cost cutting, and some continued investment in productive assets. All three combined were shown to improve odds greatly.
Posted by Tom Hood | September 10, 2010 05:58 am
Very timely article. Growth is incredibly valuable and many companies will wait too long to step up their investments in growth. At Fortuna Advisors, our entire focus is on getting the growth versus return balance right. This was the basis for my workshop at CFO Rising in Vegas and for the article CFO Publications prepared based on that workshop called ıDriving Growth with Financeı. But our latest developments are even more relevant to this article on two fronts. Firstly, our research on how capital markets value growth versus return has proven very insightful and will be documented next month in Morgan Stanleyıs Journal of Applied Corporate Finance. It turns out Return on Capital makes old assets look better than new assets, misrepresents the value of new investments and stifles investments in growth. The article is called ıPostmodern Corporate Financeı. Secondly, we have done considerable research on capital deployment and have found over many different time periods for the whole market and numerous individual industries, the companies that invest in the business (i.e. capex, R&D, cash acquisitions, etc.) generate much higher share price returns (TSR) than those that deploy their capital to buyback shares. If a company wants to achieve valuable growth, they have to invest in growth and not just give the money back to shareholders. We documented some of these findings in our recent article, ıAre Buybacks the Best We Can Do?ı. Of course, standing in the way of this is an obsession with EPS which nearly always benefist from buybacks. Investing in and delivering growth is extremely valuable and most companies would create more wealth for their shareholders if they invested more in the business. Gregory V. Milano Co-Founder, Managing Partner and CEO Fortuna Advisors LLC www.fortuna-advisors.com
Posted by Gregory Milano | May 04, 2010 08:21 am© CFO Publishing Corporation 2009. All rights reserved.