Warren Buffett and Secrets of Management - 12
A key indicator of the quality of management of any company is what it does with its excess retained earnings. In the case of a public company, this isn't too hard to find out. Just ask the question of how much is being used to buy back the stock of the company. The answer will reveal a lot about the agenda of the management and its strategy. Of course it has to make good business sense at the time. Yet it's still a good indicator when measured over a period of time.
Now in the case of private companies, it's not so easy to measure. Obviously they don't have to reveal numbers like a public company does.
In the case of profits though, it shouldn't be too hard to see how it's being spent. Are things starting to look a little too lavish around the company? Are things being purchased every time a windfall comes in through good sales?
I managed a company where the owners spent almost every extra dollar they had as it came in. It wasn't too long before they had to get rid of the business because they didn't have the displine for fiscal responsibility. And this was with the company growing on an average of 20% a year over a long period of time.
The point is that discipline and purchasing habits are two important things to look at in a business and management. The important reason why is because they are easily measured. Again, they tell a story.
This is another objective strategy to use when looking for managment potential ... or to have as a manager. Numbers don't lie. Believe what they are telling you.
Other Buffett Resources:
MSU students have special visit with billionaire Warren Buffett
Sponsored link: The outsourcing every manager requires - Tampa Locksmith
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