Finally, Evidence That Managing for the Long-Term Pays Off Flashcards
Companies deliver superior results when executives manage for _______________ and resists pressure from analysts and investors to focus excessively on meeting _____________________ quarterly earnings expectations
Long term value creation
Wall Street’s
Companies such as _______, _______ and _______ succeed by sticking resolutely to a long term view
Unilever, AT&T, and Amazon
Nww research by McKinsey Global Institute with FCLT Global found that companies that operate with a true long-term mindset have consistently outperformed their industry peers since _____ across almost every financial measure that matters
2001
Average company revenue was ___% higher in the long term
47%
Average company earnings was ___% higher in the long term
36%
Average company economic profit was ___% higher in the long term
81
Average market capitalization was ___% higher in the long term
58
Companies managed for the long term added nearly _________ more jobs on average than their peers from 2001-2015
12,000
It is estimated that the US GDP over the last decade might well have grown by an additional $_______ if the whole economy had performed at the level our long term stalwarts delivered
$1 trillion
A FCLT Survey proved that ___% of executives and directors say that they would cut discretionary spending to avoid risking an earnings miss, and a further __% would delay starting a new project in such a situation
61%
47%
___% say the short term pressure they face has increased in the past five years (5)
65%
___________ does not correspond to any single quantifiable metric
Short termism
Academic studies have linked the possible effects of short termism to _____________ among publicly traded firms and ______ returns over a multiyear time horizon
lower investment rates
decreased returns
The first actual measurement of short termism started with developing a proprietary __________________ index
Corporate Horizon index
The data from the Corporate Horizon index was drawn from _______ nonfinance companies that had reported continuous results from 2001-2015 and whose market capitalization exceeded $5 billion in at least one year
615
The sample also consisted of 60-65% of total US public market capitalization over this period
Facts
While the index enables us to classify companies as “long term” in an unbiased manners, the findings are only _________
descriptive
To construct the Corporate Horizon Index, _____ financial indicators were identified
five
Five financial indicators were:
1) Investment
2) Earnings quality
3) Margin Growth
4) Earnings growth
5) Quarterly targeting
1) Investment
The ratio of capex to depreciation
2) Earnings quality
Accruals as a share of revenue
3) Margin Growth
Difference between earnings growth and revenue growth
4) Earnings growth
Difference between earnings per share (EPS) growth and true earnings growth
5) Quarterly targeting
Incidence of beating or missing EPS targets by less than two cents
Two broad groups emerged among those 615 large and midcap US publicly traded companies:
A long term group of 164 companies (27% of the sample) which were either long term relative to their industry peers over the entire sample or clearly became more long term between the first half of the sample period and the second half, and a baseline group of the 451 remaining companies (%73).
From 2001 to 2041, the long term companies identified by our Corporate Horizon Index increased their revenue by ____% more than others in their industry groups and their earnings by ____% more, on average
47
36
From 2007 to 2014, their R&D spending grew at an annualized rate of __%, greater than the 3.7% rate for other companies
8.5%
Economic profit
Represents a company’s profit after subtracting a charge for the capital that the firm has invested (working capitak, fixed assets, goodwill)
A company is creating value when its economic profit is _______, and destroying value if its economic profit is ________
positive
Negative
Long term firms added an average $______ more to their companies market capitalization from 2099 and 2014 ten their short term peers did
$7 billion
You can not measure short termism
You can not measure short termism
