Skip to content
Learning that drives better investment decisions

Why Profitable Growth Matters (3 of 5)

| |

How to Become Financially World Class, Part 3

In this five-part video series Andrew Stotz, PhD, CFA walks you through all the basics you need to know about World Class Benchmarking and How to Make Your Company Financially World Class.

We know that business is hard, but we believe that the financial aspects should NOT be. World Class Benchmarking is a clear-cut financial tool for that takes the finances of your company from complicated to simple, from scattered to focused, and from individual to team.

Let’s answer the question: Why does Profitable Growth matter? We did a study to find out!

Global universe of stocks

  • 27,000 global companies over 20 years, 1997-2016
  • Removed financial companies, 23,500 non-financial companies remained
  • We removed 4,000 stocks that did not have the financial statement data needed for the study
  • We only included large companies, market capitalization greater than $500 million
  • We eliminated extreme outliers, excluded stocks that had a price rise of more than 500% or a loss of worse than negative 80% in any one year
  • This left us with, on average, 4,500 stocks per year, minimum = 1,500 and maximum = 8,400

High “Profitable Growth” companies yielded the highest average annual return

  • High profitability companies generated more than 2X market return over the past 20 years, 10% annual return versus market’s 5%
  • High growth companies earned more than 3X the market return at 13%
  • Prefer high growth companies over high profitability companies
  • High “Profitable Growth” companies generated 10X market return over the past 20 years
  • A portfolio of high “Profitable Growth” companies yielded the highest annual return of 19%, compared to 5% for the market
  • Prefer companies with consistently high “Profitable Growth” score

 

Watch other videos on How to Become Financially World Class

DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.

Posted in How to Become Financially World Class, World Class Benchmarking