Monthly Archives: October 2022

Your wealth engine We refer to your business as a WEALTH ENGINE when it can meet two critical criteria. The first is achieving a high return on equity (ROE). The target will be different for different styles of business depending on how capital intensive the business is and its risk profile. The other criterium is the reinvestment ratio (RIR). This is the proportion of net profit after tax that is reinvested into the business. Once again, the appropriate proportion will vary depending on a range of factors. The key requirement is that a high proportion of profits [...]

Business as a wealth engine is a simple concept. You have invested capital in your business (equity or net assets). You get a return on your investment from the business’ profits. This is represented by your NPAT (net profit after tax). Your return on equity (ROE) is measured as NPAT/Equity. You will take some of the profits out of the business (dividends or distributions) and you will reinvest the remainder of the profits into the business. This increases the amount of capital invested in the business and then requires a higher NPAT to maintain the previous return [...]

Do you think of your business as a financial investment? Do you make time to review your strategic progress? Do you have clear measures by which to measure your strategic progress? Are you clear about the short-term, medium-term, and long-term objectives of your strategic plan? Do you see your strategic plan as a series of strategic projects, or do you see it in terms of the overall growth and wealth creation objectives? Ultimately, your business is a financial investment, and the objective of financial investments is to achieve a financial return. Taking an investment management approach to your [...]

Investing in a business is a risky venture. It can take many personal sacrifices to build a business and achieve success. These efforts are generally accepted and profits expected but few people appreciate the ownership of their business itself as a 'wealth engine'. Learn more about this concept to empower your business decision-making and maximise the value you're gaining from your business. Business as a wealth engine is a simple concept. You have invested capital in your business (equity or net assets). You get a return on your investment from the business’ profits. This is represented by your [...]