CEOs and other top executives have certain financial preferences that are ultimately expressed in their management decisions. Some, for instance, are comfortable investing in potentially lucrative but risky ventures while others much prefer pursuing a market with razor-thin margins and low entry costs. Still other executives are adept at exploiting businesses with high margins but minimal indirect expenses. Are any of these approaches inherently superior — or inferior — for building value?
Answering that question first requires a way to measure the different fiscal behaviors of executives. “Financial signatures” can capture such information by measuring particular approaches by executives for building value and for using resources to achieve such goals. Standard models for measuring leadership capabilities tend to focus on certain attributes such as strategic vision and the ability to execute, but they do not directly take into account leaders’ financial approaches. They might, for instance, focus on a person’s ability to cut costs within a given vision but fail to look at the specific ways in which the individual tackles such issues. Financial signatures provide that missing view.
What Is a “Financial Signature”?
Business leaders have two basic drives: to add value to products or services and to deploy resources with a certain amount of efficiency. The first drive can be inferred from a business’ gross margin, defined as gross profits (that is, revenues minus the... To read the complete article, login or sign-up using the form below.
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