Professional accountancy is not for wimps. Drawing on her many years of experience, Alison Thomas offers some light-hearted advice
This article was first published in the September 2019 UK edition of Accounting and Business magazine.
Q I can’t believe that investors still use price-to-earnings (PE) ratios. Are they mad?
A The PE ratios, which measures the market price of a stock relative to its earnings, is a crude valuation tool. Everyone knows that. And yet, as you rightly point out, it is still widely used. Why? In a recent blog on the website Footnotes Analyst, Steve Cooper, former member of the International Accounting Standards Board (IASB), and Dennis Jullens, an academic at Amsterdam Business School and formerly of UBS, set out the theoretical underpinning of the use of PERs – how they are discounted cashflow models in disguise. It’s a great article if you want a quick refresher on the background to PEs (bit.ly/Footnotes-PERs).
Admittedly, the model they present is not fancy – far from it. Everything about PEs is on the simplistic side. And yet, to my mind, this is its strength. Everyone can see its flaws, but everyone knows the basic underlying assumptions that it represents. Whether or not you agree with those assumptions may just be the critical insight you need to make a bundle of money.
Q We seem to be heading towards real-time reporting. Is it really the answer to investors’ prayers?
A I’m torn. Part of me worries about the health of fundamental analysts faced with a tsunami of data on their portfolio of companies. I also worry about the noisiness of such data. Would it leave us deaf to long-term trends?
On the other hand, can we continue to ignore what is going on in the digital world? The world’s largest investment firms routinely buy in real-time data feeds from a vast array of sources. This allows them to track smartphone locations on a real-time basis. It gives them e-invoicing data on a product-by-product basis. It offers satellite imaging of delivery trucks and shop car parks.
If investment firms know a retailer’s footfall or a particular product’s sales, then perhaps it makes sense for companies to level the playing field for the rest of the investment community by releasing the data themselves.
Q I work harder than anyone else in the team, but time and again I’m passed over for promotion. Am I being taken for granted?
A You’re not alone. Last year ESCP Europe and Cass Business School surveyed 52,000 European workers and found that those who spent more time in the office reported higher levels of stress and fatigue as well as lower job satisfaction. Just to add insult to injury, they also found a link between greater work effort and inferior career outcomes. Those who slog their guts out apparently enjoy fewer opportunities to advance within the company, less job security and less recognition.
And I’m afraid that the bad news doesn’t stop there. A study in the European Heart Journal found that those who work more than 55 hours a week were 1.4 times more likely to develop an irregular heartbeat than those on a standard 35 to 40-hour week. They also note widespread evidence that those working long hours are at greater risk of having a stroke. Less really can be more.
Q Senior management at my firm all act the same way. It’s as if they park their personalities at the door when they enter the building. How can I progress while still maintaining my own individual character?
A I see it all the time. You walk into a firm and it’s like a factory churning out clones. Some argue that uniformity of character de-risks operations, so managers reward those who toe the line. Personally, I think such arguments are no more than a crude attempt to justify lazy recruitment practices – that, in reality, cookie-cutter personalities arise from a natural propensity for managers to hire people who are similar to themselves. The result risks the perils of groupthink, can stifle innovation and will bore the socks off clients.
The good news is that cultures can shift – typically very slowly, but it can happen. You might luck out with new senior management coming in from the outside to shake things up. If not, you have three choices: you and your cohort can lead by example, showing the benefits that diverse perspectives can bring; you can join a firm that already understands the benefits of diversity; or you can find a firm whose dominant personality matches your own. Fight the attack of the clones.
Alison Thomas is a consultant.