Chaudhuri, 2020b

Understanding a Company for Value Investing

Business Efficiency, Business Effectiveness, Innovativeness, Sustainability

Synopsis

Teaching courses on Financial Management, Security Analysis and Portfolio Management, Corporate Finance and Critical Analysis of Organizations requires reference to profit and loss accounts and balance sheets of companies. The last course that I have been teaching over the years also refers to qualitative traits of companies like strategy, vision and leadership qualities. Reading annual reports of companies is essential to appreciate the above mentioned courses and in Calcutta Business School we inculcate this habit among our students. This also helps in delivering lectures in Marketing, Operations Management and Human Resource Management. It is very difficult to develop appreciation of a company, if a student does not read annual reports of companies.

Tracking performance of companies over time requires metrics of measurement, and the book emphasizes throughout the need for such metrics. The book divides the performance of companies under the heads of business efficiency, business effectiveness, innovativeness and sustainability and metrics under each of the heads are defined. Even to understand qualitative traits of companies, metrics are defined.

The book emphasizes the utility of management concepts like BCG Matrix and Balanced Scorecard in understanding companies. Concepts of Transient Advantage, Blue Ocean Strategy and Porter’s Five Forces are discussed in the book and their role in understanding companies. It is reiterated that so long as a company is in existence, there must be customers and the company must be delivering value. A company has various activities and they are all interwined together in harmony. Only when the harmony breaks, companies face complications. Business cycles and associated ups and downs will be there in sales and profitability. However, continuity is ensured by management response, and this also determines the quality of a company.

The book covers performance of medium and small scale enterprises through a sample study. The purpose is to highlight the relationship between innovativeness, productivity, nature of industry, size, skill sets and access to technology. These factors are also true for companies of larger size, and some of my research papers have dealt with these aspects.

After reading the book, I hope the reader gets some idea as to how to perceive a company.

Introduction

Chapter 1
A company is not a company
Type of product/service
What is a company?
What makes a company?

Chapter 2
Various approaches to evaluating a company
Framework 1 – The BCG Matrix
Framework 2 – The Ansoff Matrix
Framework 3 – Porter’s Five Forces
Framework 4 – 7-S of McKinsey
Framework 5 – SWOT Analysis
Framework 6 – Balanced Score Card
Framework 7 – External Factor Evaluation Matrix (EFEM)
Framework 8 – Competitive Profile Matrix (CPM)
Framework 9 – GE McKinsey Matrix

Chapter 3
Business efficiency, business effectiveness, innovativeness and sustainability
Business efficiency
Business effectiveness
Innovativeness
Sustainability

Chapter 4
How does a company grow?
Generic growth
Growth through innovation
Growth as depicted by the Ansoff Matrix
Growth through development of new product or services
Sustainable growth

Chapter 5
Long term orientation and value creation
Long term orientation
Innovation – R&D expenses/Sales
Increase in Net Fixed Assets (NFA)
Sales growth
ΔY/ΔK
P/E multiple
Ability to attract external funds – Increase in long term borrowings
Value creation
Economic Profit
RORE

Chapter 6
Leadership, strategy, innovativeness and economic moats
Leadership
Strategy
Innovativeness
Economic moats

Chapter 7
Global conditions, the domestic macroeconomy, industry outlook and company performance – The interconnectedness examined

Chapter 8
Innovativeness, skill intensity and growth – A study of MSMEs
Evidence of extent and type on innovation
Information, skill & innovation
Information, skill & growth
Constraints for innovation

References

About the Author

Professor Tamal Datta Chaudhuri did his graduation in Economics from Presidency College, Calcutta and his MSc in Economics from Calcutta University. He obtained his PhD in Economics from The Johns Hopkins University, USA. He taught in Calcutta University for 15 years and then joined a Development Financial Institution, Industrial Investment Bank of India, where he became Chief General Manager in Charge. He has 42 years of teaching experience and 23 years of industry experience. He has taught in several institutes like Indian Statistical Institute, Calcutta, ICFAI Business School, Calcutta and Hyderabad, IISWBM, IIFT, IMT Ghaziabad and Towson State University, Maryland, USA. He was Visiting Fellow at the University of Illinois, Urbana Champaign, USA. The subjects that he has taught are Microeconomics, Macroeconomics, Critical Analysis of Organizations, Stock Market Simulation Game, Concepts in Management, Security Analysis and Portfolio Management, Corporate Finance, Financial Derivatives Management, Risk Management in Banks and Treasury and Foreign Exchange Management. He has published several research papers in domestic and foreign journals and has a few books to his credit. Dr. DattaChaudhuri has executed research projects on behalf of the Planning Commission and the Department of Science and Technology, Ministry of Science and Technology, Government of India. He has been an invitee to the Salzburg Seminar, Austria. He is currently Professor and Dean of Calcutta Business School, Calcutta, India.