Strategic Thought Transformation - The IIPM Think Tank

S T R A T E G I C I N S I G H T
not go back into a negative WTF
profile in the future. Investment
decisions (especially capital assets
decisions) might skew the WTF
Tally curves of the MetaSBU from
positive to negative, from time to
time. This in no way should signify
that the MetaSBU has again become
a dangerous proposition. But prudent
managers would generally not
prefer becoming negative on the
WTF profile, after having attained
a positive Wealth Time Frontier.
Instead, the management should
focus on how to keep on increasing
the WTF Tally of the MetaSBU and
how to keep on reducing the WTF
Tallies of the various shareholder
groups. The Wealth Payback Sculpt
annexures that the management
develops should necessarily mention
details of how the WTF Tally
has been calculated and the negative
or positive
figures
thereon of
Net Cluster
Wealth.
Therefore,
whenever
any
intelligent
investor has
to invest in
a business
unit, the
WTF & WTF
Tally position
of the business
would be vital benchmarks.
The Net Cluster Wealth Flow is
what gets added or negated from
the WTF Tally every year after all
adjustments are attempted.
Any MetaSBU that has a negative
Wealth Time Frontier associated
with it in any period is consequently
called a WTF Negative
MetaSBU. The WTF box in the
Magnitude Narrative Body of the
WPS would be coloured in a combination
of Red & Orange for all
those periods when the MetaSBU
is WTF Negative. Any MetaSBU
with a positive Wealth Time Frontier
is called a WTF Positive MetaSBU. The
WTF box in the Magnitude Narrative
Body of the WPS would be coloured
in a combination of Black & Blue for
all those periods that the MetaSBU
remains WTF Positive. In those rare
cases when the MetaSBU is WTF Neutral
(wealth break-even period), the
WTF box is coloured in a combination
of Green & Yellow.
How long or short is
a ‘period’
One period does not necessarily mean
one year. With respect to these constructs,
a period could be a day, a
week, one fortnight, a month, a quarter,
a year or any duration convenient
for relevant analysis of MetaSBU performance.
The longevity of a period depends
totally on the industry dynamics.
For example, the computers & fashion
industries display faster dynamics
than say the steel
or cement industry; hence
would have shorter periods
to analyze. When day
traders are attempting to
use these constructs to
analyze wealth scenarios
of their various stock investment
portfolios, each
hour (or even shorter)
becomes a period. Even
though for simplicity sake
In this model, if a
group of
shareholders has
not been paid in
any period, then
they get increased
returns later on
we have only covered limited periods,
in reality, the WPS and m-PIPE constructs
have been known to be developed
for as large as 50 periods and
above.
If management has to promise returns
to even shareholders, then what is the
difference between loan giving entities
and shareholders
The difference is historic. If the
company is not making wealth, the
management is not obliged to payback
the equity shareholders. That is
the risk being taken by shareholders.
No shareholder can go to the courts
to force management to release the
sunken investment. But a creditor can
take legal recourse to recovering loans
provided to the corporation. These constructs
also handle such unpaid equity
shareholders extremely logically. In
case one group of shareholders has not
received dividends for some years; the
WPS construct calculates the future
value of dividends to be paid by management
to this group by increasing the
amount of payable dividends using the
AIR (Augment Interest Rate) that in
turn is the actual compounded return
on investment that shareholders are
expecting. Thus, if a group of shareholders
has not been paid in any period,
then the shareholder group gets
increased returns in the subsequent
periods. These returns are increased
with the exact (or more) amount to
take care of the unpaid periods.
What about those shareholder
groups that have already reached the
positive side of wealth payback, that
is, whose wealth investments have already
been returned with profit margins
Don’t these shareholders get any
more dividends
Obviously they do continue to get
more dividends. But their dividend
payout ratio would depend upon the
Augment Interest Rates & DWACC calculated
on the basis of other shareholder
groups and creditors whose
investments have still not been paid
back.
What if the management has succeeded
in paying back all shareholder
48
STRATEGIC INNOVATORS
An IIPM Intelligence Unit Publication