The Profitability, Financing, and Growth of the Firm
Goals, relationships, and measurement methods
Sven-Erik Johansson and Mikael Runsten
2014, second edition
The book contains an accounting-based model for integrated analysis of a company’s profitability, financing and growth. The book is rather compact in form, with a focus on important concepts, accounting key ratios and their interrelations. A concrete example with increasing complexity is used to illustrate most of the ideas. In order to internalize the practical relevance of the book we strongly recommend that you read “real annual reports” in parallel with reading the book. In other words, read and try to make sense of what companies write about financial strategies, financial targets and which key ratios they choose to use when presenting performance and future ambitions.
Another method to make the concepts of the book come alive is to analyse companies that you care about. Calculate the key ratios and evaluate how sensitive the numbers are to alternative financial choices and outcomes. In order to simplify some of these tasks for you, we have made several simple (and sometimes more complex) Excel-models that you can download and experiment with. The headlines are meant to help you to see what the models try to capture.
Do not forget that a model can be very practical and helpful, but it cannot not draw conclusions for you. The wise conclusion you will have to draw yourself.