THE SEVEN FUNDAMENTAL BELIEFS - Belief #5

The primary purpose of a publicly traded company is to convert all of the company’s available resources into shareholder value.As share-owners, your job is to make sure that this happens. Companies are not only “going concerns,” they are also resource conversion organizations—converting all of the company’s available resources into shareholder value. If this conversion does not take place, then the company is better off shutting its doors or going private. Often, an event—or an ongoing sequence of events—needs to take place to make this transition from resource conversion to wealth creation a reality. These events are called catalysts.These catalysts can range from the launch of a new product to the break-up of the company. The best businesses are those with management teams who are most efficient in converting the company’s resources into shareholder wealth. The company’s resources include its people, capital, brand, property, plant, and equipment, etc. Shareholder wealth develops by converting these resources into shareholder value. An increase in real earnings can be added to share-owners’equity. Free cash flow can be properly reinvested, or dividends can be provided to shareholders, if management cannot properly convert its cash streams to wealth creation for shareowners. Management is the key.

THE SEVEN FUNDAMENTAL BELIEFS - Belief #5