Assessing company strength in South Africa using value added : 1990 - 2000

King, Cecilia (2003-03)

Thesis (MBA)--Stellenbosch University, 2003.

Thesis

ENGLISH ABSTRACT: The publication of the Value Added Statement should be seen as an attempt to introduce financial results to all the stakeholders of an organisation that aided in its wealth creation process. However, the current practice to present Value Added Statements in a variety of ways is not conducive to financial analysis and users of the information find it difficult to compare company results. The information on the Value Added Statement provides useful knowledge of the contribution of employees and fixed assets, the relative relationship of dependency and control between the organisation and its suppliers and the long-term requirements of the organisation to meet market demands. This study project aims to determine if value added-based ratio analysis could be used to measure company strength and be useful as a tool in corporate strategy formulation. The areas of investigation included productivity of production factors, reinvestment in capital and overall business control. The measures used to determine productivity also provided insight into the capital and labour intensity of companies and sectors. The model that was developed in this section indicates how companies differ in terms of their intensity and how productive their production factors are. It was found that although some companies were able to exert high value added to sales ratios, they did not perform as well when their productivity levels were measured. This is an indication that an imbalance exists between the current production factor proportions and management should try to find the optimal solution for increased productivity. The search for the optimal point between labour and fixed assets could convince management to reduce employee numbers or fixed assets to increase their productivity ratios. This is not a favoured approach as companies are dependent on their production factors for continuous growth and prosperity. The aim is to determine if companies have the means to invest in their production factors to increase their levels of productivity. Reinvestment in capital refers to fixed assets, as well as investment in training and development of current employee skills. The investigation revealed that many companies have the ability to reinvest, while others appear to be in a less favourable position. The last section was an attempt to measure the overall business control of companies when their margins on sales and value added were compared. These ratios provided insight into the ability of companies to add value through their own production skills or by command of lucrative contracts with suppliers. Those companies that are able to show high values on both ratios are said to display a high degree of overall business control. In conclusion it was found that value added-based ratio analysis could be used to identify problem areas in corporate strategy. Management's reaction to those areas and their continuous drive to improve value creation in the organisation would eventually lead to increased national wealth creation.

AFRIKAANSE OPSOMMING: Die publikasie van die Staat van Toegevoegde Waarde moet gesien word as 'n poging om finansiële resultate aan alle belanghebbendes van 'n organisasie, wat bygedra het tot die proses van welvaartskepping, aan te bied. Die huidige praktyk om die Staat van Toegevoegde Waarde op verskeie maniere aan te bied is egter nie bevorderlik vir finansiële analise nie en gebruikers van die inligting vind dit moeilik om maatskappy resultate te vergelyk. Die inligting op die Staat van Toegevoegde Waarde verskaf waardevolle kennis oor die bydrae van werknemers en vaste bates, die relatiewe verhouding van afhanklikheid en beheer tussen die organisasie en sy verskaffers en die langtermyn behoeftes van die organisasie om aan markverwagtinge te voldoen. Hierdie studieprojek poog om vas te stel of toegevoegde waarde gebaseerde verhoudingsanalise gebruik kan word om maatskappyvermoë te bepaal en of dit 'n nuttige instrument in korporatiewe strategieformulering kan wees. Die areas van ondersoek het die produktiwiteit van produksiefaktore, herinvestering in kapitaal en algehele besigheidsbeheer ingesluit. Die maatstawwe wat gebruik is om produktiwiteit te bepaal het ook insig gegee oor die kapitaal- en arbeidsintensiteit van maatskappye en sektore. Die model wat ontwikkel is in hierdie afdeling wys hoe maatskappye verskil in terme van hul intensiteit en hoe produktief hul produksiefaktore is. Dit is gevind dat, alhoewel sommige maatskappye in staat was om hoë waardes vir die toegevoegde waarde tot verkope verhouding te openbaar, hulle nie so goed gevaar het toe hul produksie vlakke gemeet is nie. Dit is 'n aanduiding dat 'n wanbalans bestaan tussen die huidige produksiefaktor verhouding en bestuur moet probeer om 'n optimale oplossing te vind vir verhoogde produktiwiteit. Die soeke na die optimale punt tussen arbeid en vaste bates kan bestuur oortuig om werknemer getalle of vaste bates te verminder ten einde hul produktiwiteitsverhouding te verbeter. Dit is nie die aangewese benadering nie aangesien maatskappye afhanklik is van hul produksiefaktore vir volgehoue groei en welvaart. Die doel is om te bepaal of maatskappye die middele het om te investeer in hul produksiefaktore ten einde hul vlakke van produksie te verhoog. Herinvestering in kapitaal verwys na vaste bates, sowel as investering in opleiding en ontwikkeling van bestaande werknemer vaardighede. Die ondersoek het openbaar dat baie maatskappye wel oor die vermoë beskik om te herinvesteer, terwyl ander blyk om in 'n minder gunstige posisie te wees. Die laaste afdeling was 'n poging om die algehele besigheidsbeheer van maatskappye te bepaal wanneer die marge op verkope en toegevoegde waarde vergelyk word. Hierdie verhoudings bied insig oor die vermoë van maatskappye om waarde toe te voeg deur hul eie produksievaardighede of deur middel van winsgewende kontrakte met hul verskaffers. Maatskappye wat in staat is om hoë waardes vir beide verhoudingsgetalle te openbaar word beskou as maatskappye met 'n hoë algehele besigheidsbeheer.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/53296
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