Firms listed on the stock market are called publicly listed companies. Many of these firms have become household names and are so close to our hearts.
Studies show that only 10 of 100 companies succeed, suggesting that these winners possess unique characteristics that make them great. Countless studies have been conducted to determine what makes these companies perform better each quarter, and most have found the following.
1. Strong Purpose/Vision
2. Debt Management
3. People and Resource Management
4. Diversification
All four qualities can be replicated at the individual level to make us better versions of ourselves in the years to come.
Let us explore them in detail...
Strong Purpose/Vision: Every company articulates its vision and the roadmap to get there. The employees are inspired to do everything they can to make the vision a reality. A clearly outlined vision and a roadmap will boost employee commitment and productivity, whereas an ambiguous goal with no clear pathway will discourage them from action.
Our personal lives are no different. If you have a clear purpose for what you aspire to become and how to get there, your journey would be extremely fulfilling. When your job or profession aligns with your purpose, you usually stay motivated and do all it takes to be the best in your field. If your purpose does not align with what you are doing, you end up miserable and stressed.
Debt Management: Good companies are experts at handling debt. The companies have an added tax advantage when taking on debt: interest payments are fully tax-deductible. The Debt-to-EBITDA Ratio is a metric used by analysts and experts to assess whether a company is overleveraged.
EBITDA stands for Earnings before interest, taxes, depreciation, and amortisation. Basically, it checks their debt levels against their income.
From an individual perspective, we can easily track our debt-to-income ratio. Add up all your EMIs, then divide that by your monthly income. Since interest payments are not tax-deductible for individuals, there is no clear advantage to incurring large debt.
A lower debt-to-income ratio is advised, leaving ample room for activities money can buy. A 20-30 per cent debt-to-income ratio can be considered a manageable level.
People and Resource Management: No company in the world has access to an unlimited talent pool or resources. The best companies in the world manage the resources they have to create a winning product.
They have robust systems that identify employees' skill sets and place them in roles that leverage their strengths. A person who is good at sales works in sales. If they are posted as production controllers, the purpose of skill management is defeated.
The same applies even at an individual level—nobody has unlimited strengths. Everyone has their share of strengths and weaknesses.
You should know your own strengths and focus on playing to them. If you are talented or highly skilled, find a profession that matches your skill sets. If you end up working in jobs that expose your weaknesses rather than your strengths, you lose self-confidence and esteem.
Similarly, you should be able to plan your resources (things you can buy with money). If you overspend, you end up poor. If you underspend, you may not achieve optimal output.
Diversification: Every company has a core product that is its cash cow. Once the firm learns to milk its cash cow, it starts diversifying into other businesses or services. They venture out into other areas to expand their footprint and maximise revenue and profits.
For example, Reliance Industries had Oil & Gas as its core product; now it has diversified into telecom, finance, retail, media, petrochemicals, etc. Interestingly, the margins on their new businesses are much higher than their core product as well.
As an Individual, you also have a moat that provides your primary source of income. Once you are comfortable with the job or business, you should start looking to acquire other assets, such as equity, real estate, gold, and commodities.
The best way to acquire these assets is through a Systematic Investment Plan (SIP) offered by mutual fund companies. If planned correctly, your alternate sources of income may surpass your primary income in 20 to 25 years.
The author is a research scholar in applied economics, CUSAT and NISM-certified research analyst and investment advisor.
DISCLAIMER: Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.
The opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.
