Philip Fisher’s focus on investee company’s financial control

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Philip Fisher, founder of the growth investing school of thought, was aware of the importance of how a company’s management handles its financial affairs; only when this is done well and accurately is management in a strong position.

Those companies with above-average financial talent have several significant advantages:

  • They know accurately how much profit they make on each product. They then have the ability to direct effort to produce maximum gains.
  • Knowing each of the cost elements highlights where it might be worthwhile making a special effort to reduce costs, either through process changes or managing people more effectively.
  • Skilful budgeting allows planning and the company has an early-warning system to alert managers to where things are not going according to plan and where profits are threatened.

In short, it is no good having an excellent product, but not the financial skill to produce and sell the product at the right price.

Difficult to discover

It’s difficult for us investors to uncover inefficiency in these areas.  As outsiders we cannot expect to obtain detailed figures, but by talking to customers, suppliers, employees etc. we can start to build a picture of competence over time.

Consistence in profit margins and savings

Fisher looked for companies with a consistent history of high profit margins, as these are likely (but not certain) to give an indication of future performance.  Some companies have a high degree of pricing power by which they are able to maintain their profit margin.

At the same time, it is just a….To read more subscribe to my premium newsletter Deep Value Shares – click here

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