How To Read The World Class Benchmarking Triangle (5 Of 5)

How to Become Financially World Class, Part 5

In this five-part video series Andrew Stotz, PhD, CFA walks you through all the basics you need to know about World Class Benchmarking and How to Make Your Company Financially World Class.

Dr. Andrew Stotz (AKA the author here) is having a free webinar for ValueWalk readers (Capped at 100) on Nov 21st  on the topic of “top 6 valuation mistakes” enter here

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We know that business is hard, but we believe that the financial aspects should NOT be. World Class Benchmarking is a clear-cut financial tool for that takes the finances of your company from complicated to simple, from scattered to focused, and from individual to team.

How to answer these questions?

  • How do I create clear and consistent financial goals?
  • How do I get everyone on my team to understand the company’s financial goals?
  • How do I make sure that the company’s financial goals do not cause internal competition?
  • How do I align my team’s financial goals with my firm’s financial goals?

This triangle

Top of the triangle

  • The top of the triangle is the measure that matters: Profitable Growth
  • We rank the company from 1 (best) to 10 (worst)
  • We track the company for 5 years
  • A company should strive for strong profit growth with minimum asset use

Middle of the triangle

  • Profitable Growth rank driven from results of two different measures below
  • Strong Profitability means generating more profit from assets
  • Earnings per share Growth, the market values it and so should you

Bottom of the triangle

  • Results at the top of the triangle are explained by the two items below
  • Profitable Growth is explained by the company’s rank against global peers on six different measures, four of them on the bottom of the triangle
  • Asset utilization – Revenue generated from assets
  • Profit margin – A measure of cost control
  • Sales growth – Proves customers want products
  • Profit margin change – Internal driver of EPS growth
  • Level two and three explain what is the source of Profitable Growth

Now you see the gold of World Class Benchmarking

  • By just looking at the triangle you can know about the financial performance of the company
  • Profitable Growth matters most
  • Everyone understands a 1-10 ranked scorecard
  • Like a scorecard in sports the goal is clear to all team members and does not change midgame
  • This gets all employees aligned behind one financial goal, to become Financially World Class

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Dr. Andrew Stotz, CFA is the CEO of A. Stotz Investment Research, a company providing institutional investors with ready-to- invest portfolios in Asia that aim to beat the benchmark through superior stock selection. The company also provides buy- and sell-side clients with financial models to value any company in the world and World Class Benchmarking to determine what companies are financially world class. Previously, as Head of Research at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers Polls for 2008 and 2009. He was also voted No. 1 Analyst in Thailand in the 2009 Institutional Investor magazine All-Asia Research Team Report. Andrew earned his PhD in finance at the University of Science and Technology of China in Anhui province, with a focus on answering questions raised by fund managers and analysts during his career about picking stocks and managing portfolios. In addition, Andrew has been a lecturer in finance for 22 years at various universities in Thailand. Since 2013, he has been the president of the CFA Society of Thailand. He is also the author of How to Start Building Your Wealth Investing in the Stock Market.