The financial turmoil in Wall Street has come in for scores of reviews and comments. Pundits are busy analyzing what went wrong and even at business schools, Professors are re-thinking how they can teach lessons from the recent past to their graduating students. An article in the Boston Globe speaks of how the country’s biggest and best business schools, like the Harvard Business School, Wharton and MIT Sloan, are looking for lessons from all that’s happened. They are trying to incorporate the lessons learned in the curriculum through the latest case studies.
One big lesson, writes Prof. Partha Mohanram in Forbes, is for firms to stay focused on profitability. This, he writes, is the critical factor for any firm’s success – not just raw profits. He defines profitability as the profit made by the firm relative to the amount of assets that have been deployed. Prof. Mohanram, the Phillip H. Geier Jr Associate Professor of Business at Columbia Business School holds an array of people responsible for the financial mess. They , he writes, have been guilty of chasing profits at the cost of profitability. They have forgotten the true value of the good old balance sheet.
As we all know, the balance sheet should reflect the financial situation of the organization ( read: liabilities and assets) . A recent joke making the rounds is that unfortunately in many companies, there is nothing right with the left of the balance sheet and nothing left in the right of the balance sheet.
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This is Post No: 310 of the “A Step A Day” series : To provide perspective and provoke thought to facilitate self-development across a wide spectrum of issues- big and small- crucial for executive success.