스냅차트

Forget Smooth Earnings; Focus on Profitable Growth

Profitability and return on invested capital have the biggest impact on total shareholder returns.

스냅차트

Forget Smooth Earnings; Focus on Profitable Growth
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In our world of quarterly earnings calls, public company executives tend to focus on delivering a smooth and predictable record of earnings growth. This, they think, is what the market values, an assumption that turns out to be misplaced. A recent Bain & Company regression analysis examined the total shareholder return (TSR) of 3,713 companies in a cross-section of industries with annual revenue greater than $50 million from 2009 to 2019 and market capitalization between $500 million and $10 billion.  It found that predictable earnings per share trends explain less than 1% of the variation in TSR. By contrast, improving operational performance—as measured by earnings growth and return on invested capital—has 35 times the impact on TSR. It’s far more effective for firms to focus on delivering higher performance than on planning for accurate quarterly earnings predictions.

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