In the current economic environment some companies are camouflaging their poor performance with some suspect off-balance sheet shenanigans other dubious activities.
Directors of many companies simply do not have the understanding
of the mechanics or the day to day activities of the business which they
purport to run.
There have been graphic examples of this recently, the gross
mismanagement and ineptitude at the Co-op Bank and the manner in which Tescos
was being run. This lack of commercial expertise has been especially true in
the case of non-executive directors.
In trading environments it is not uncommon that totally
unrealistic profit targets have been passed from board level to trading
departments. No cognisance having been given to the disproportionate risks
which need to be taken to achieve these targets.
Some of the most spectacular financial flame outs have followed
a period of ostensibly highly successful trading.
In their desire to recognise these “profits” no thought
were given as to how they were being made. In such times it would be well to
take note of the old adage that is something looks to be too good it usually
is!
If a company is bucking the trend in these difficult times it
may well be that they are implementing a winning formula.
However history tells us that it is prudent to implement some
rigorous analysis in order to avoid any unpleasant surprises.
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