Stock Market Tips-4
Is the management dynamic and forward looking?
A company can only be as good, or as bad, as its management. It is management that provides the main driving force behind corporate performance. Therefore, as a would be investor it is necessary for you to find out the quality of a company's management before you invest in its shares.
To begin with, don't be misled by commonplace cliches which most people use to judge company managements by, such as family managements are bad, professional managements are good, or foreign managements are good, others are not so good, etc. Companies run by traditional business families can sometimes be as dynamic and forward looking as the best of professionally run subsidiaries of foreign multinationals. On the other hand, some foreign companies with so called professional managements have a poor record of performance. Therefore, don't go merely by labels; look, instead, for the real picture.
One way to find out whether a management is good or bad is to look at its past performance. Look at its track record. Look at what its growth rate has been in the past. Growth rate can be Judged by looking at a company's sales, profits and gross block over the last three to five years. Find out how it has fared as compared to companies of a similar size engaged in similar operations. How has the company coped in the past with adverse business conditions, like a demand recession, rising costs, etc.? Has
the management shown awareness of future business conditions and changing trends in business and industry? If so, then what has it done to deal with, or take advantage of them? Has the company tried to keep up with the times by replacing obsolete equipment and introducing technological innovations, new products and designs, and by adopting new and more effective man. agement practices, etc? The answers to these questions will help you decide whether a particular company's management is sufficiently dynamic for you to invest in it.
How does one go about getting the information necessary for probing into the quality of a particular company's management? Most newspapers and magazines particularly the financial dailies and business magazines (list given in Appendix A) give a lot of coverage to news concerning prominent companies and their managements. Most of these articles are analytical and probing and can provide you with valuable insight into the functioning and performance of different company managements.
Sometimes you will come across companies whose managements are riven with factionalism and infighting. These managements will not have the necessary unity of purpose, loyalty, or the cohesiveness required for high quality corporate performance.
You should therefore avoid investing in such companies, unless
You have strong reasons to believe that such factionalism and in¬
fighting are purely temporary and will soon give way to a respon¬
sible and united management.
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