Dialogue Q1 2019

Page 62

FINANCE

62

In the fast lane Professor Joe Perfetti reveals the world’s most financially agile firms

The world has been tuning in to the hit musical Hamilton. The spectacular show reimagines the story of one of the US’s most influential Founding Fathers. Yet while theatregoers are captivated by the rapping lyrics and resplendent costumes, there is another aspect that is worth noting. Hamilton’s deceptively simple set features a double turntable that enables the actors to stand still and move at the same time. Built into the floor of the stage is a spinning circle of wood, with another, independently spinning ring around it. The revolving stage suggests that the world never stops spinning, a metaphor that’s not limited to political history. As described in our article on strategic agility (see page 16), without doubt, the business world is moving at a much faster pace than ever before. Speed is such a critical concept in finance that my colleagues and I have studied a metric known as Financial Cycle Time to determine how quickly a company moves relative to the market. Similar to the double turntable on the Hamilton stage, the metric considers how fast your company (the inner ring) is spinning compared to the market (the outer ring), and Dialogue Q1 2019

how fast your company is generating cash relative to your competitors. If you don’t know the answer, you should. That’s because there are painful consequences if your company can’t keep pace, including lack of investment flexibility, pricing flexibility and decreasing market share.

2018 global productivity rankings

We looked at more than 1,000 publicly traded companies around the world and divided them in sectors per the Global Industry Classification Standard (GICS), including beverage, speciality retail, airlines, automotive, and personal products, to determine the companies that are most responsive and resilient. We used the Financial Cycle Time to measure a company’s financial agility: how long it takes on average to turn investment into revenue. The metric is measured in days – the fewer the days, the better (see table opposite).

Two important takeaways

First, it’s important to recognize that financial agility is industry-agnostic. It doesn’t just apply, for instance, to companies in transportation


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