Periscopix

You can never cross the ocean until you have the courage to lose sight of the shore.” Christopher Columbus

Natalie Hilton

Read bio

Financial Performance?

It was the financial performance section that really captured my interest. This was based on a survey of respondents from the general public. 30,000 people were asked to give ratings on different companies and those companies were then ranked according to those ratings in each section.

Top five companies by financial performance reputation

The list above is the top five based on these questions for financial performance.

This didn't look quite right to me. At least, it didn't seem to reflect what I thought I knew about the performances of these companies. So I pulled out their annual reports and did a bit of checking.

The real numbers

The table above shows some of the most common metrics for measuring a company's financial performance. These are Q4 2010 numbers, and all these numbers are in $millions.

Revenue is the total income.

Profit is the net operating income as detailed in the financial statements.

Liquid Assets are cash or cash equivalents held by the companies.

Total Assets include everything owned by the company.

Market Capitalisation is the share price multiplied by the number of shares - e.g. how valuable the company would be to buy.

So how does it correspond to the survey?

I've sorted the table above by the same ranking as the survey. Google comes top, but it has the lowest revenue of the five and the second lowest profit.

Nor does it come top by total assets (a lowly 16% of that managed by Berkshire Hathaway) or even market cap (beaten by both Berkshire and Apple).

Listing these five purely by profit (probably the most meaningful measure of financial performance) you get:

  1. Apple
  2. Intel
  3. Berkshire Hathaway
  4. Google
  5. Disney

But what about the rest?

This list of companies still seem to be missing something. We all know how much profit oil companies make, right? What about banks? Or Walmart?

So I scanned through the Fortune 500 sorted by revenue. The highest placed from our survey's top five (Berkshire) comes a lowly 11th.

Our highest profit firm in Q4 was Apple. But annually in 2010 they only reached 26th on the US list by profit. Disney only managed 41st.

Who have we forgotten?

By profit last year, from Fortune:

  1. Exxon Mobil
  2. Microsoft
  3. Walmart
  4. Procter & Gamble
  5. IBM
  6. Goldman Sachs

These are the usual suspects. The companies we expect so see. Every single one of these was an option in the list in the survey. (To become an available choice they went through a pre-round of nominations)

What happened?

In a word, technology.

People love technology firms, and the bias is quite strong. Every firm in the list above can be put into one of these categories that people love:

  • Technology
  • Cartoons
  • Warren Buffet

Ok, so maybe those categories aren't the real reason these firms score so highly. But the disconnect is really there between which companies people think are succeeding and which ones really are.

Niceness bias

It's time to look at where else these companies scored highly in the survey.

3 of our top five were also in the top five for workplace environment (Google, Apple and Berkshire Hathaway). All of them made up the top five (in a different order) for Vision and Leadership.

Google and Disney were both top five for social responsibility, and Intel and Google both made top five for products and services.

Simply put, people love these companies for their products, their inspirational leadership, the idea of working there, etc. They are companies people like. Exxon? Walmart? Not so much. Exxon has a reputation for environmental disasters and Walmart has gone through several lawsuits brought by its own employees.

It looks like people can't be objective dealing with the cold hard facts about companies they like. A great reputation will give you a big boost in people's minds when they think about how well you're doing as a company. And that in turn leads these companies to get huge market capitalisations, where Apple are second only to Exxon, despite having a fraction of the same revenues or profit.

Share this article

blog comments powered by Disqus

Pulley!