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New Stock Market Perspectives on Company Performance

7 June 2007 - Features - Editor

Does the Securities and Exchanges Commission (SEC) look after all stock market interests? Do financial statements reflect company performances fully? It is widely known that companies with a recent history of poor earnings may actually be on the verge of a dramatic upswing. Worse, a company with run away share prices may actually be on the brink of a terrible downward curve. How can a stock market investor be reasonably sure that the future cash flows of an investment in a security made today will beat the bank rate?

Executives must smirk in private at the wide gaps which sometimes occur between stock market rumors about a corporation and the real goings on! Insider trading is banned, but those guys with the suits and expense accounts sure know stuff which can save us from nightmares of losses, if not produce windfalls of quick cash and profits. The fine print in the pages for investor relations on company web sites tells us that forward-looking projections must be taken with caution, but that is as far as the truth goes! Internal procedures of the best managed companies routinely disclose much more about the future fortunes of a corporation than the stock market will ever know.

Management Gurus at the Harvard Business School devised a method for accurate and holistic company performance appraisal, way back in the 1990s. Surveys show that more than half of all U.S. corporations use this methodology, called the Balanced Scorecard, to keep tabs on how well their strategies are implemented, though stock market regulators seem to be hell bent on keeping small investors in the dark about this! A corporation which uses the Balanced Scorecard system is more likely to achieve its strategic goals than one which is not run as professionally.

A crucial pointer for stock market observers is that the Balanced Scorecard goes far beyond traditional financial returns on which regulators place so much of emphasis. Customer, operational, and knowledge perspectives are built in to corporate performance measurement, apart from the usual financial angles. Goals are kept simple but with plenty of stretch. The best part is that measures are decided for qualitative goals, just as is conventional for the numbers game.

Check, if you can, on the Balanced Scorecard of every corporation which you own in part, whenever you next catch the eye of one of its senior executives.

 


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