Introduction
The current business environment has created a tough competition among companies each struggles to appear in top ten of the best-practice companies. The Financial Economics uses several factors in determining the suitability of an organization to be ranked among the best practice companies. On the other hand, the best-practice companies share some similarities, and also there are some differences in their operations. A company becomes recognized for its best practices based on the amount of revenues in the respective fiscal year. In addition, the classification is based on the market value that determines the company’s share price as a product of the number of outstanding share. Moreover, the classification is based on the amount of profits a company makes in a year (Fabozzi, Neave & Zhou, 2012). Some of these companies are Wal-Mart Stores in United States, Royal Dutch Shell in Netherlands, BP in Britain, China National Petroleum in China, Toyota Motor in Japan, and Apple Inc Limited in United States.
Discussion
Describe what these best-practice companies do in the field of Financial Economics
In the field of financial economics, companies have many responsibilities of ensuring their operations perform the best practices as required by the economics rules. The best practices are based on the attitude of the company management with the view to the achievement of the established target market. Firstly, the company should ensure it maintains high revenue and profit levels all year round. In addition, the company must provide all the financial information and reports to the government revenue agencies for consideration as a best-practice. The revenue figures required of Financial Economics by the corporations include consolidated subsidiaries and reports on the revenues from discontinued operations (Kenny, 2012). For example, in 2011 Wal-Mart emerged the leading company with approximately $422 billion in revenues followed by Royal Dutch with rough $378 billion in revenues. The ability of Wal-Mart to maintain high revenues has rendered it a best-practice company in the field of Financial Economics.
Secondly, the enterprise market values and market capitalization must stay on top. The market value for a company is measures using sales, profits, and assets. The fair value measures the relative importance placed by investors on the company. The approach and theory of market value measurement in a financial economics report acts as a major determinant of the company’s performance. According to ICAEW (2006), the performance measurement tool determines the company incentive compensation that affects market performances. The Financial Economics uses market value in determining the position of a company in terms of financial ratios. These ratios are Return on Investment (ROI), Liquidity ratios, Profitability ratios, and Asset management ratios. For example, Apple topped the world market with a market value of $560 billion in 2012, followed second by Exxon Mobil with $408.8 billion worth of market value.
Thirdly, the field of financial economics expects a company to have definite track records in terms of debt management and fair value. The aspect of fair value measurement comes from the financial accounting because it analyses the disputes found in a company. A company must pass the fair practice measurement that determines its capacity to future as the best best-practice company (Bromwich, 2007). In addition, a company must hold an effective marker hypothesis irrespective of changes in market prices and tax allocation. Such companies always have excellent strategies on how to overcome any challenges irrespective of the weight to avoid debts. For example, in the year 2012 Toyota Motor had $358.3 billion worth of assets with a market value of $147.9 billion. This is a clear indication that the company has more assets than liabilities that allow it beat any debt challenge. Moreover, the financial Economic rules require that a company should never owe any financial institution large sums that might term it bankrupt. A company that has many assets than liabilities meets the following requirement thus, liable for consideration as a company with best practices.
What are the similarities across companies?
Organizations aim at attaining their mission goals and objectives, which might be similar in different companies. To start with, the companies choose effective division managers. Companies ensure they select professional division managers because competition occurs at business unit levels. Divisions’ form the cutting edge of most prominent companies thus their leaders make sure the areas have qualified division managers. The companies’ business unit managers ensure diversification in struggling to reduce managerial loads in the company corporate sector. The best-practice companies ensure business unit managers selected are capable of performing in order to win the stiff competition. For example, Wal-Mart and Apple Limited have extremely superior high performing division managers capable of withstanding all market diversifications. In addition, these managers have the ability to motivate others to work as a group with the same goal of becoming the best company globally.
The second similarity is also found in best-practice companies involve setting up effective incentives. The companies make use of monetary and non-monetary incentives in an extensive manner in order to influence the managements’ behavior. The performance measure the provision of these incentives is a vital driving force in a company’s management behavior. All best practice companies ensure the effectiveness of incentives that prevent misalignments between divisional and business objectives. For example, Toyota Motor and Wal-Mart companies consist of multiple manufacturing facilities that operated as each company’s profit centre. Both companies and many others have put in place incentives that combat changes in a market place. Companies in the best-practice category undergo structural alignments along their functional lines. The following similarity is found in many companies because their business objectives were almost similar. Moreover, the company incentives are aligned with an increase in company’s value that forms the prime indicator of the return of equity of these companies (Gupta, 2009).
The final similarity observed in across these companies involves their corporate cultures. The companies have a unique respect for culture and structure that drives operations within the organization. Corporate culture forms an essential aspect of an organization and contributes a lot to its success. For accompany to be included among the best-practice companies in the financial economics, it should portray an ascending performance level. Business results are highly affected by the company’s prevailing culture. For example, Apple, Toyota Motor, Royal Dutch Shell, and China National Petroleum companies have the same cultural setting. All companies have single culture that operates in all divisions globally. Perfect management of culture increases the market value of an organization resulting to high profit margins and big revenues. Moreover, companies perform similar recruitment and retention of employees in practicing corporate culture.
Major difference
The major difference between the operations of best-practice companies occurs in the company structure. Various companies have different organizational structures guiding how power is distributed from the top to bottom. The organizational structure assists an organization in planning of marketing strategies that ensure the company wins the global financial market. For example, Apple organization structure allows free interaction between the top management and junior employees. On the other hand, at Toyota Motor the organization structure allows only interaction among top managers. The difference in the structuring of operations in an organization acts as a means of strategizing a company to ensure it defeats the competitors. Moreover, the same organization structure commands how a company performs in relation to employee involvement in making crucial decisions.
Critique of the best practices
These best practices cannot put the company on top unless all stakeholders have a common goal. For instance, some companies generating high profits and revenues do not feature in the best-practice category provided by financial economics. The best-practices should be seconded with other measures such as the relationship with other companies and shareholders. A company must have many investments for it to generate many profits. In addition, the best-practices do not include the involvement of world’s economic status in controlling the performance of the company. Some companies found in third world countries never get a chance of becoming top in the world because of the economy of such countries. The financial economic teams should range best-practice companies depending on their revenue generation, profits, assets, and location in the continent.
In order to implement best practices in my organization, I would ensure the company has a lot of assets to cater for all debts. The availability of assets would also act as a security for accessing loans that will assist in putting up new incentives necessary for improving the organization productivity. Moreover, the organization culture should be centered to ensure employees and stakeholders have a stake in the company.
Conclusion
Several factors are put in consideration in determining the suitability of an organization to be ranked among the best companies. As seen from the findings above, these factors are revenue generation, market value, and amount of profits generated. In addition, these companies were founds to share some similarities in areas of division management, setting effective incentives, and corporate culture. On the other hand, a major difference in operations of these companies was found in organization cultures. The factors discussed were those recognized by the Financial Economics department but their findings also found some critiques as seen on the discussion. Finally, my company was not secluded as it also received some recommendations that would make it feature among the top best-practice companies. Organizations should embrace the discussed best practices in order to become competitive in the global market and enjoy the privilege of being among the top ranked company in the world.
References
Bromwich, M. (2007). 'Fair values; imaginary prices and mystical markets'. In P. Walton (ed.) The
Routledge Companion to Fair Value and Financial Reporting. London: Routledge, pp. 46-68.
Gupta, G. (2009). The importance of the right incentives. Retrieved from:
http://www.stroudconsulting.com/fileadmin/user_upload/pdf/The_importance_of_the_right_incentives.pdf
Fabozzi, F. J., Neave, E. H., & Zhou, G. (2012). Financial economics. Hoboken, NJ: Wiley.
ICAEW. (2006). Information for Better Markets: Measurement in Financial Reporting. London: Institute
of Chartered Accountants in England and Wales.
Kenny, G. (2012). “Diversification: best practices of the leading companies”. Journal of Business
Strategy.Vol. 33, No. 1: 2-19
