Want to assess distinct businesses, but also looking for a fair method to compare them? Let’s do it.
Suppose you are the chief executive of the holding company of a diversified conglomerate. Evaluating & monitoring the performance of group companies or subsidiaries is essential to your role. The challenge is, depending on the level of diversification within your portfolio, you may be looking at various businesses that are substantially different in size, industry, age etc.
Still, this is your accountability, and for the holding company to achieve better consolidated results, you have to assess the individual performance & contribution of each group company. This assessment might have significant outcomes which might involve new investments, acquisitions, further diversification, portfolio reallocation & so on.
For your assessment, you will most probably be looking at a set of metrics & executive reports from each subsidiary, and also a summary dashboard showing consolidated results. You might then wish to deep dive into issue domains or priorities set by the board or your extended stakeholders, and understand the performance of subsidiaries in specific areas ranging from innovation outputs to profitability, liquidity, sustainability, growth etc.
Let’s consider profitability for instance, and suppose you want to have a discussion with the chief executives of different subsidiaries on, say, the gross profit margin of their respective companies. Each executive will have a solid explanation for why the realized figure is lower or higher compared to the consolidated gross profit. And in most cases, each of these executives will have a point.
Or if you want to benchmark the innovation outputs of one subsidiary against the best performing group company, again there might be several underlying reasons justifying the gap in between the results.
So the implicit problem is, you will not be able to derive a conclusion on how well each of these companies perform on an overall basis, and secondly, you will not be able to make a fair comparison among those different businesses.
Similar to the above case, the need to compare unlike businesses is of interest to investors, as well – whether you are a stock market investing individual, an angel investor, venture capitalist or running a private equity firm. And this situation might be a little more challenging given the depth of data & number of metrics you need to take into account for ratio analysis.
Now with FITNESS Score ™, assessing businesses from top to bottom is a nice & easy task. FITNESS Score ™ tells you how fit a business is & how to keep it fit. It can be calculated for any business, no matter what its size, industry, age, type or location is.
Moreover, what FITNESS Score ™ has to offer is a holistic picture of a business. It factors in not only all the financials that are typically considered in evaluating a business, but also all the rest of the information related to the business from end-to-end, including organization, objectives, non-financial metrics, processes, value proposal, management style, innovation capability, sustainability, and even the vision, to name a few.
Thanks to the scientific basis of its generation mechanism, FITNESS Score ™ can also be used to compare different businesses. For instance, suppose Company X has a FITNESS Score ™ of 80 & Company Y has 70. Then, it is fair - and also valid from a statistical point of view - to argue that “Company X is fitter than Company Y”.
All in all, FITNESS Score ™ helps us evaluate & monitor overall fitness of a business, and if needed, enables us to make an objective & accurate comparison of businesses.
Moreover, using the Strategic Analysis Result (S.A.R.) generated together with FITNESS Score ™, we are also able to see potential issues below the surface, upcoming risks, optimal course of action to achieve & sustain fitness, and much more regarding the businesses we assess.
The good news is, FITNESS Score ™ & S.A.R. can be generated in one single session. And better news is, even without having a session, a limited version of FITNESS Score ™ & S.A.R. can still be generated.
Issue resolved, so what’s next?
Visit mehmetcanarslan.com/fitness-score for further information on FITNESS Score ™.
Follow M. Can Arslan & Company on LinkedIn to stay tuned & not to miss the latest insights.
Disclaimer: All investment strategies and investments involve risk of loss. Nothing contained in this article and website including the products / services offered (e.g. FITNESS Score ™) should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit. Please refer to mehmetcanarslan.com/legal-notice for the complete version of our Disclaimer.