Company Performance: Five Telltale Tests

THE PRESSURE FOR SHORT-TERM earnings on the part of security analysts and asset managers is unlikely to abate in the foreseeable future. Businesses, thus, have to accommodate themselves to it. But most chief executive officers have learned by now that short-term earnings are quite unreliable, indeed often grossly misleading, as measurements of a company’s actual performance.

Most experienced executives have also learned that there is no magic formula for measuring business performance. Just as an automobile needs a number of dials on the dashboard and also needs to have its tire pressures ...

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