Finance Q. Why would a company want capital investment paid off quicker than industry norm ?
Posted by: warwick on 26 April 2015
I've noticed a high degree of financial acumen on this forum.
The company I work for is setting targets that are much higher than last year sales figures. Last years sales are usually met, but the figure achieved is usually lower than the target set by the board. A manager said that this target is higher because of the increased investment.
My manager's boss has been grumpy the past week. I've heard from an outside source the company is in financial difficulty.
My suspicion that the owners/directors want their capital investment (recent injection of several million for new projects) to be paid off relatively quickly was confirmed by another worker who has studied accountancy. He said the real sales target is 8 % lower than what I'm officially told it is. He also said that compared to other companies, a much lower percentage of profit is returned to the workforce in wages.
Any thoughts on this ?
Posted on: 26 April 2015 by feeling_zen
Paying off capital investkent from VCs is generally a good thing. A major driver for this is the fact that as long as an organisation is tied to venture capital, it doesn't control it's own destiny. VCs wield huge control over a business and while they can help get it off the ground, their main goal is short term/mid term returns.
If the people running the business have bigger dreams that require more long term thinking or feel that the ultimate direction they want to take the company in could be jeopardised by being forced to satisfy VC short term return goals, then paying back the VC as early as possible makes good sense.
In fact, a company that manages this is showing healthy signs of indipendence and indicates managers have bigger dreams than a simple rate of return but are personally attached to the company.
Posted on: 27 April 2015 by warwick
feeling_zen Thanks.
My company is privately owned. It's had the same very wealthy owners for a long time. For most of the previous decade it was making a small loss. In the past couple of years it has started to be modestly profitable. Pay rises & bonuses for ordinary staff have been almost zero.
A significant number of management were squeezed out a couple of years ago. Now the management structure is getting bigger again.
Posted on: 27 April 2015 by feeling_zen
Honestly if it were me, I would just ask my manager outright to explain it. If he didn't know I would raise it to the CEO or CFO at the next all staff meeting (or whatever).
If they didn't want to share the info, I would start looking elsewhere. Not out of concern for financials but because I wouldn't trust a company that didn't share their goals and roadmap with employees.
Posted on: 27 April 2015 by hungryhalibut
If a significant investment has been made it stands to reason that greater sales will be needed in order to get the return on said investment. People read a lot into things and draw conclusions that may be right or may be wrong. The key questions are whether it's a satisfying job, whether the remuneration package is competitive and, if the answer to either of both of these is 'no', whether there are viable alternatives.
Posted on: 27 April 2015 by fatcat
Warwick.
I'd suggest you definitely don't mention it to the owner and stop listening to your accounting adviser.
+1 Hungryhalibuts comments. Plus, it seems a sensible move to strengthen the management to cope with the increased turnover.
Posted on: 27 April 2015 by hungryhalibut
Indeed, people who have 'studied accountancy' are not necessarily the same as those who are qualified accountants. A little knowledge can be a dangerous thing - like I said, management's actions seem very reasonable.
