ETHICS
Business ethics is a form of scrutinizing the ethical principles, moral or ethical problems that occur in a business environment. All the stakeholders from the company should realize the social obligations and not just go beyond the maximizing profits. Unfortunately, under the high competitive industries and the trend of globalization, as any of competitors starts to drive the manufacturing cost lower by outsourcing to oversea, the business ethics will become a debatable item. All the firms run for the business would like to maximum the profit but only prefer to conform to the minimum requirement from the laws or regulations. The companies may think they actually create jobs and boost economy in oversea and believe the negative ripple effects on facilities to be established and transfered can be well mitigated. The increase of local layoff, the effect of regional environmental pollution and concerns of other cultural or social impacts all become unavoidable issues need to deal with as any transition occurred. A leading company should be more aware of short and long term benefit and consequence on any of decision making, because they are the ones setting up the example for other on how to do a critical ethical judgment.
I would like to use the company I work for as the example on how the ethical judgment being made.
Linear Technology Corporation - LTC, a leading analog IC solution provider, still keeps most of the major manufacturing sites in the US. LTC makes its best effort on retaining all the staffs locally to benefit the society.
Even LTC is in highly competitive semiconductor industry, it believe it's talents of human knowledge delivering the result instead of relying on machines or automatic systems. In fact
LTC did not adopt the high tech security check, automatic answering system or online ePaper on filing documents; instead, the company hires the local seniors or non-technical personnels for these job functions. LTC remains the non-technical job openings to benefit the local society.
The company never believes growing the business through merger, then cutting the unwanted business portion through laying off. LTC would rather reinvest itself and keep making high performance, high quality products that others cannot deliver to maintain the high profit margin. The key strategy for LTC long term success is through self-evolution. Trapping into the cost competitive loop will just drain out the creativities.
Regarding the practice of financial ethics, as so many competitors having endless back dating stock option scandals in year 2000 and SEC revealed most of top management ripped off the profit from investors, LTC is the one passed all the SEC investigation without paying a penny of penalty. LTC is not only the highest profit margin semiconductor company in the world but also have excellent business ethics that exceeds other competitors. Mentality of LTC is set up the standard to lead rather follow.
My principle of business ethics is: provide an unbiased professional judgment, do no harms to our society and benefit others.
ACCOUNTING
The key of MBA concept in accounting is to interpret the information that accountant generate. I would like to high light few items I think it’s important:
Cash Flow -- Cash flow is the key to differentiate how well the business runs verse competitors.
Asset = Liability + Owner’s Equity -- For the company did not pay dividend, we should check owner / stockholder’s equity increase in annual basis. OE is the net worth of the company. OE divided by outstanding shares is the company’s book value.
Net Working Capital is Current Asset minus Current Liability – Working capital need to maintain at a healthy level especially at the foreseeable downturns.
Ratios of Financial Statement -- be aware of that all the financial items are “industrial specific”.
Liquidity Ratio = Current Assets / Current liability -- how easy to convert current asset to pay the bill
Asset Turnover per Period = Sales / Total Assets – how actively the firm uses all of its assets
Inventory Turns per Period = Cost of Goods Sold (COGS) / Ave Inventory Held during Period
Days Sales in Inventory = Ending Inventory / Daily COGS
Returns on Assets = Net Income / Total Assets
Returns on Sales = Net Income / Sales – this is the real profit margin
Returns on Equity =Net Income / Owner’s Equity – higher means better financial leverage
Ratios #2, 3 & 4 are the activity measurements of the asset deployment.
Ratios #5,6 & 7 are for the the profitability measurements
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