Management motives: a tricky business

Company analysis is all about the numbers, right? Knowing how to calculate price-earnings ratios, analyse return on equity and work out last year’scapital expenditure are certainly useful skills. But they’re a smaller part of the story than you might think.Just as important is trying to understand management’s motives. Because, believe it or not, your best interests aren’t always at the top of their minds.Sometimes they’re looking to maximise their pay packets; other times they’re hoping to enhance their reputations or avoid negative perceptions. And quite often these motives conflict with shareholders’ longer-term interests (although rarely in an obvious way).KEY POINTSThe ‘soft side of analysis’...

Company analysis is all about the numbers, right? Knowing how to calculate price-earnings ratios, analyse return on equity and work out last year’scapital expenditure are certainly useful skills. But they’re a smaller part of the story than you might think.

Just as important is trying to understand management’s motives. Because, believe it or not, your best interests aren’t always at the top of their minds.

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