The stock market is overly dependent on historical numbers. The pace of change in the modern business world deserves new measures to help stock investors make optimal decisions. Qualitative measures matter at least as much as figures and ratios from statutory reporting.
Most small capital stocks have relatively short histories. That is another reason for investors to look beyond technical and conventional financial analyses. The Balanced Scorecard method is a favorite with management professionals for meaningful business performance assessment.
Robert S. Kaplan, who teaches at the Harvard Business School, and David P. Norton, who founded a professional services company, first wrote about the Balanced Scorecard in 1992. The original method has evolved considerably since it was first conceived, but the core elements endure.
Customers, internal processes, and organizational learning join the usual financial parameters, to form a quadrant for holistic performance measurement as per the Balanced Scorecard. Investors can apply this method by asking the following and additional kinds of non-financial questions of companies that seek their funds:
1. How satisfied are customers, and what proportion remains loyal to the organization?
2. Is the company able to exploit all available opportunities, and how often does it suffer adverse incidents and set-backs?
3. How does the organization manage diversity, and is the rate of people turnover healthy?
Arms of the U.S government join some of the world’s largest corporations in using the Balanced Scorecard. Retail investors can gain by copying the big league for better picks from small capital stocks.
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