Management Skill

A firm’s managers determine the course of its failure and success over long periods of time. These people will ultimately determine the fate of investments in a business, irrelevant of whether it’s a startup or a blue chip firm ran for generations. Firms should be run in the long term best interest of several groups, including its stockholders or bondholders. As an investor or a credit lender, you need to know how the company is run by its management. In the long run, an investment earns a return based on the choices, character, honesty, responsibility and management skill.

Invest in firms which have solid financial footings and a competent and responsible management. The best management firms operate with a perspective that earns investors and creditors their return responsibly without unnecessary risk or waste of resources, labor, and capital. A firm’s management can generally be profiled and compared to other executive teams from many other firms, some positive, and some negative.

Management skill will be represented by the financial results which occur under their guidance. This does not necessarily reflect the share price of the firm’s stock, but the actual financial positioning of the firm. Look at changes in financial performance over their term.

Competent management will deliver growth and improvement without increasing leverage or significantly decreasing investor share values. Beware of growth which only seems to come attached to substantial increases in leverage or sharp increases in public shares. The best managers can accomplish substantial growth, either in Margin, Market Share, and Return on Assets or Equity while buying back shares and reducing leverage or debt. They can also provide this growth without acquisitions. Be sure to relate results to their managing period.