ASS #2 - Step 1.
I must say, this reading took me some time.
It took time for me to read some parts, re-read and then even re-re-read (just
created a word!!). I do feel as though I’ve enhanced my understanding.
One of the key concepts I took was the
importance of social learning. It has been absolutely true within my life that
once I start a conversation about something, I learn and understand more. So, I
will continue to use Facebook and Peerwise as thus far, I’ve found them to be
of great assistance.
This social learning is a key component of
our course and I would think that all those involved with designing the course
have seen the benefits. I can see that by involving yourself in discussion,
forums, and questions, we ‘add value’ to our learning opportunities and our
understanding.
Another key concept was, in my opinion, is
that we need to look at the history of the firm in order to make educated
guesses about its future. The fact that capital markets trade in expectations
does make me uneasy. I think of ‘it takes money to make money’, in the sense
that taking risks, is often needed in business.
Initially through the readings, I wonder
what are the drivers for a firm? I am interested to learn about this. Are we
going to get these answers? I begin to understand after reading on about the
restating of financial statements. It makes sense to me to do this. I relate
this to many situations but for example work, you enter a new job, get
information on how it operates but until it’s in your own hands, you don’t
‘really’ understand.
I am beginning to understand some concepts
throughout this chapter such as free cash flow, operating assets and how to
create value. I feel more confident as I read through the chapter in relation
to these principles as they make sense to me. I relate it to a previous work
situation where I fought tooth and nail to have an Occupational Therapist
employed (in direct relation to my operating programs). Once the OT (capital)
was employed, the organisation was very pleased with the return on operating
cash flow that was produced from this investment. She made the company well
above what the company paid her.
Analysing the drivers is also starting to
gel with me. It has still been elusive to me, lets be honest, as to how I’m
going to have a ‘real’ understanding of a firm based on their annual report. Up
until now, I have felt as though I am very unprepared and perhaps being lulled
into their very alluring marketing plans. I am starting to see that once we restate
the financials,, look into the history, see what is driving the profits and see
what choices a company is making as far as capital, we can make an educated
guess as to what the future might hold. I like the information about capital
not being free and the alternative investments that could be. It seems a good
point to make that by looking at what a company invests in, will show where it
wants to go.
Drivers are – profitability, efficiency and
return on net operating costs.
I also note that it’s important to focus on
areas that are not affected by organisational policy (eg. Dividends). Focusing
on what IS making profit and what is NOT, will improve our understanding of the
firm.
The importance of separating Operating
activities and financial activities is crucial. This information and including
how to apply tax is initially a bit over my understanding. I do see the
examples though and believe once I look into restating my firms reports, I will
be able to reference the examples and once I can apply the information, I’m
confident I will understand.
Another key concept I have noted is the
relationship between profit margins and efficiency. I am assuming this is all
about the ‘bottom line’ and look forward to further understanding this.