Three Things Shareholders Should See #RealValue

Many investors or shareholders focus on (ROE) or Return on equity. “It measures the efficiency of a firm at generating profits from each unit of shareholder equity, also known as net assets or assets minus liabilities.”

HBR published an article several years ago that suggested it may be wise for shareholders to look at (ROA) or Return on assets. “The return on assets (ROA) shows the percentage of how profitable a company’s assets are in generating revenue.”

If companies do the math and focus on ways to cut costs, increase production, or change the operating model, they can create an illusion of organizational health.   This changes the whole game which makes the measures less valuable.

Shareholders should have a few other indicators tied to their reports.

  1. Employee Turnover and Absenteeism :  Employee turnover and absenteeism is a clear indicator that something is wrong with the company.  People leave for various reasons; however, when turnover is high, there is something wrong that can’t be ignored.   Interestingly enough, because shareholders don’t really have good general insight to this, not much attention is paid to it holistically.   On the flip side, study upon study shows that happy workers are more productive.  It sort of seems flat out stupid for companies to ignore human factors, but when you can tweak a number to make things look good, it is just easier… right?   Here is an example of a calculation.  Source http://www.payscale.com/compensation-today/2010/02/how-to-calculate-employee-turnoverTo calculate monthly employee turnover rates, divide the number of employee separations in one month by the average number of active employees at the worksite during the same period. We’ll say we have one site of operations.Monthlyturnover

    For example, let’s say we lose four employees out of 200.

    Monthlyturnover2
    That gives us an employee turnover rate of two percent. What if we repeated this employee turnover calculation to highlight the turnover rate just in the new hires, not in the whole company, over the course of a year?

    How to Calculate Employee Turnover Rates within the First Year Have you wondered if employees leaving in less than 12 months have a bearing on your business? What about on your business practices? You can learn both by learning about first year employee turnover.

    To compute this, divide the total number of employees who leave in less than one year by the total number of employees who leave in the same period.

    Here’s what the formula looks like:

    First Year Turnover Rate
    Now to pull numbers into our formula for first year employee turnover:

    26.7% = 31 employees in first year of employment / 116 Employee turnover in a time period

  2. Employee Surveys and Trends:  Seems like rocket science. 12_elements_final

If the numbers are low, this is an indicator of something bad. Bad is bad and investors / shareholders need to know what the leadership is doing to erase the bad stuff going on inside the company.   Now, there are companies that are constantly changing everything to keep their value moving up, up, and up like Amazon, but there may come a time when a company like Amazon doesn’t have any workers *wink wink* and is fully automated by Echo like artificial intelligence!  Until then, the stock price of Amazon can keep skyrocketing, but their quest for good employees or any employees also has to move up.  A few articles about Amazon talk about how bad it is to work for the company like http://www.ibtimes.com/amazoncoms-workers-are-low-paid-overworked-unhappy-new-employee-model-internet-age-1514780

This kind of behavior (if true) can last for a long time and the stock prices can continue to go up, but just because stock prices are good, doesn’t mean the body is healthy!

Check this out https://www.macroaxis.com/invest/ratio/AMZN–Return_On_Asset

“Based on latest financial disclosure Amazon Inc. has Return On Asset of 2.22%. This is 129.1% lower than that of the Services sector, and 115.87% lower than that of Catalog and Mail Order Houses industry. The Return On Asset for all stocks is 119.44% lower than the firm.”

Don’t worry the red shouldn’t scare us at all.. because *cough* the stock price is skyrocketing year over year!  Do I think that the (ROA) has anything to do with employee engagement?  Yes, I do.    The reason is that if employees care about more than just themselves, they will do what they can to protect their family (organization) and friends (organization) and help their business.  So, yes I think the employee survey data should be right along side net income.

3. Internal Organization Movement and Transformation:

If the org chart is changing faster than product and service lines, it probably is an indicator of something bad.  Change is good, change all the time is not so good.    If a company is always transforming and morphing, what the heck is it?  There is a concept known as “organizational competency” which is the organizational ability to maintain expertise, knowledge, an ability to execute and master the organizations value prop to customers, clients, employees and investors.  It is not based on an individual it is a body.   If you keep going to the doctor to get body parts replaced it won’t be long before you aren’t you.

I sort of think that all this transformation is the “plastic surgery” of business.  It seems like a good idea at first until you wind up looking like… http://badsentinel.com/2013/11/05/plastic-surgery-gone-horribly-wrong-25-photos/

(Oh, please.. these folks are addicted to transformation) Can you think of any organizations that changed so much that you don’t recognize them?  Can you think of products that have changed so much that you won’t buy them?  The changes are slow over time, a little tweak here or there, but they haven’t always been for the good of the company or product.  Good old Twinkies taste like cardboard with sugar chemical globs of goo injected inside.   I recently saw a developer take one and set it on his desk for months to see what happened to it.   Let’s say that it is still in perfect condition and there IS something wrong with that.

Three..

Screen Shot 2016-01-24 at 12.26.40 PM
Wellness

 

At the top there are three indicators

  1. Employee Wellness and Happiness % by Survey
  2. Turnover and Absenteeism %
  3. Organizational Change and Transformation % by monitoring org change

These three form the basis of a “People Wellness Score” which can serve as a high level indicator.

I recently read Ben Horowitz “The Hard Think About Hard Things” and he said “People, Product, Profit”  Wouldn’t it make sense for shareholders to know more about the first P?

 

 

 

 

 

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