Belverd E. Needles

Strategy and integrated financial ratio performance measures: A longitudinal multi-country study of high performance companies

Purpose – This study investigates the links between strategy, execution, and financial performance with particular attention to the underlying performance drivers that describe how a company executes strategy to create financial value. Methodology – This study empirically investigates companies in the United States and 22 other countries over a 20-year period (11 successive 10n-year periods: 1988–2007): (1) to compare financial performance characteristics of HPC versus non-HPC; (2) to study the sustainability of performance in HPC; and (3) to identify the companies that exit or enter the HPC classification and the performance drivers and performance measures that characterized the change in HPC classification. Findings – The 20-year longitudinal results confirm the results of prior studies as to the long-term superior performance of HPC over other companies (Objective 1). For sustaining HPC, results were consistent as to total asset management, profitability, financial risk, and liquidity (Objective 2). Declining HPC companies fail at total asset management, profitability, and operating asset management and significantly increase their financial risk. Emerging HPC companies improve liquidity through improved operating asset management and cash flows (Objective 3). Practical implications – To become a HPC management must generate increased cash flows from income, manage receivables and inventory vigorously, and reduce its debt in relation to equity. Thereafter, management must concentrate on maintaining its asset turnover and growth in revenues while maintaining its profit margin and not increasing its debt to equity. Value of the paper – The results provide direction for management of companies that aspire to HPC status and to maintain HPC status.

Performance measurement and executive compensation: Practices of high-performance companies

This study examines the links between financial performance and executive compensation for high-performance companies (HPC). HPC display sustained and superior cash flow returns, asset growth, and total shareholder returns. In previous empirical analysis, HPC companies displayed specific identifiable financial performance drivers and measures when compared to companies in the S&P 500 (Needles et al., 2004). Most recently, HPC sustained their high performance when compared to the S&P 500 over varied economic periods. Further, the research identified operating asset management characteristics of these companies, especially as they relate to the cash cycle (Needles et al., 2004). Continuing this stream of research, this study first identifies the financial and non-financial performance measures related to compensation of top management of HPC as reported in the companies’ public disclosures. Then, these findings for HPC are matched to a set of comparable non-HPC. Finally, we evaluate the stated performance measures for executive compensation in light of the performance drivers and measures identified by previous research to be distinguishing characteristics of HPC. We hypothesize that HPC will more closely align stated performance measures for executive compensation with performance characteristics that have been shown to be characteristics of HPC. We find that HPC are more focused and unambiguous in their use of both financial and non-financial performance measures in executive compensation.