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The M Curve of The Money® Game™
The Money® Game™ Model debunks the old-age myth that high profit margins indicate a winning industry or firm, given the fact that the 3Ps of profitability boxes have been ticked. That is, the profitability of sales, the profitability of assets, and the profitability of capital at a point in time. Indeed, it’s commonly believed that high profit margins signify success, but this overlooks the impact of GDP growth on corporate net profit over time. To truly win The Money® Game™, an industry or company needs to have a profit growth CAGR above that of its country or industry, respectively, regardless of its profit margin ratio. Surprisingly, over 50% of profitable companies -- that tick the 3Ps of profitability boxes -- are actually losing in The Money® Game™ because their compounded total profit is below their industry’s total profit growth CAGR. This means that their share of the national or industry’s total profit is shrinking over time, which has significant implications for corporate strategy, mergers and acquisitions, and private equity. The three charts below illustrate the points. Please, scroll down.
The M Curve of The Money® Game™
Firms on the left side have their total profit growth CAGR below Industry's: This means they are losing the Money® Game™ because their industry's profit share is shrinking.
Firms on the right side of the game have their total profit growth CAGR above industry's: This means they are Winning the Money® Game™ by growing their profit share.
The Money Game® and Country GDP
Our collective aspiration is to witness the GDP flourish, a phenomenon that directly influences its five building blocks below. The most significant of these for the Money Game® is the corporate net income across all industries. Strategy is not just about growth; it's about Winning the Money® Game™ when an industry's net income growth CAGR outpaces the national corporate net income growth CAGR. Similarly, an industry is also winning if its total operating profit growth CAGR is higher than the national operating profit growth CAGR.
This concept of 'Winning the Money® Game™' adds a thrilling competitive edge to the discussion.
When an industry's total net income or operating/ordinary profit growth CAGR exceeds the national growth CAGR, it's a clear sign of Winning the Money® Game™. Industries that meet these criteria are not just growing; they are progressively capturing a larger portion of the national profits. This success is not limited to industries but also holds true for individual firms, as seen in the comparison of a firm’s total profit growth CAGR versus its industry’s total profit growth CAGR (see next chart). Crudely speaking, winning the strategy game means Winning the Money® Game™.
Industries' Money Game® Matrix
When a company's total net income or operating/ordinary profit growth CAGR surpasses the total profit growth CAGR of its industry, it indicates that the company is winning the Money® Game™. Otherwise, regardless of its high, average, or low profit margin, the company is losing the Money Game®.
Countries'Money Game® Matrix
When an industry's total net income or operating/ordinary profit growth CAGR surpasses the total profit growth CAGR of a country, it indicates that the industry is winning the Money® Game™. Otherwise, regardless of its high, average, or low profit margin, the industry is losing the Money Game®.
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Insights by Numbers
It is unfortunate, but true that the majority of companies in Japan are on the losing side of the Money Game. They may have varying profit margins, but their profit growth rate is lower than that of their industry. As a result, their share of the overall industry profit and Japan's national profit is gradually decreasing without much attention.
Profitable Losers %
Firms with a high profit margin, but with either total net profit or operating (ordinary) profit CAGR below the industry's profits growth CAGR.
Profitable Losers %
Firms with low profit margins AND with either total net profit or operating (ordinary) profit CAGR below the industry's profits growth CAGR.
Profitable Winners %
Firms with high or low profit margins AND with either total profit (net, operating, or ordinary) growing above the industry's profit growth CAGR.
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Through our consulting engagement model, we are dedicated to delivering exceptional results. Our collaborative approach ensures that we work together with our clients, from identifying issues to defining objectives and delivering positive impacts. With our expertise and commitment,
we can help you achieve your desired outcomes and other strategic objectives.
Kick-Off Meeting
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Our assigned experts enhance value creation and value capture at client's firm.
Lasting Impacts
We measure our success and value of our expertise regarding our positive impacts.
Results by Numbers
# of Firms on Japan's Fast Lane
# of Money® Game™ Winners
# of Performance Medalists™
# of Japan's Insight Members
- Growth Game.
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- Performance Game.
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