An Overview of Corporate

Finance and the Financial

Environment

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In a beauty contest for companies, the winner is... General Electric.

Or at least General Electric is the most admired company in America, according

toFortunemagazine’s annual survey. The other top ten finalists are Cisco Systems, Wal-

Mart Stores, Southwest Airlines, Microsoft, Home Depot, Berkshire Hathaway, Charles

Schwab, Intel, and Dell Computer. What do these companies have that separates them

from the rest of the pack?

According to more than 4,000 executives, directors, and security analysts, these

companies have the highest average scores across eight attributes: (1) innovativeness,

(2) quality of management, (3) employee talent, (4) quality of products and services,

(5) long-term investment value, (6) financial soundness, (7) social responsibility, and (8)

use of corporate assets.

These companies also have an incredible focus on using technology to reduce

costs, to reduce inventory, and to speed up product delivery. For example, workers at

Dell previously touched a computer 130 times during the assembly process but now

touchitonly60times.Usingpoint-of-saledata,Wal-Martisabletoidentifyandmeetsur-

prising customer needs, such as bagels in Mexico, smoke detectors in Brazil, and house

paint during the winter in Puerto Rico. Many of these companies are changing the way

business works by using the Net, and that change is occurring at a break-neck pace. For

example, in 1999 GE’s plastics distribution business did less than $2,000 per day of busi-

ness online. A year later the division did more than $2,000,000 per day in e-commerce.

Many companies have a difficult time attracting employees. Not so for the most

admired companies, which average 26 applicants for each job opening. This is because,

in addition to their acumen with technology and customers, they are also on the leading

edge when it comes to training employees and providing a workplace in which people

can thrive.

In a nutshell, these companies reduce costs by having innovative production

processes, they create value for customers by providing high-quality products and

services, and they create value for employees through training and fostering an envi-

ronment that allows employees to utilize all of their skills and talents.

Do investors benefit from this focus on processes, customers, and employees?

During the most recent five-year period, these ten companies posted an average an-

nual stock return of 41.4 percent, more than double the S&P 500’s average annual re-

turn of 18.3 percent. These exceptional returns are due to the ability of these com-

panies to generate cash flow. But, as you will see throughout this book, a company

can generate cash flow only if it also creates value for its customers, employees, and

suppliers.

See http://www.fortune.
com for updates on the U.S.
ranking.Fortunealso ranks
the Global Most Admired.

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