Spotting Successful Strategies (Part 1): Building Shareholder Equity

When most of us look for company successes, we naturally gravitate towards the latest and greatest product they just released or a really sought after service which the company provides. As a result, we as consumers look at their bottom line - profits, revenue, EPS, ROI, etc. Basically how much revenue is the company generating. Yet if you look at many companies with huge success on the Fortune 500 list, they have a different focus. Instead of spending millions of dollars on research and development, designing the product, developing the product, putting the product through the quality assurance process and so on these other companies are spending millions of dollars on purchasing assets. Whether it be real estate, buildings, manufacturing plants or chattel, these companies are acquiring acquiring acquiring as opposed to inventing, developing, testing.  

Having said that, which is the proper focus? A company that is product-centric or a company that is acquisition-centric? A company that is product-centric may be successful but the longevity of that success is short fetched. Long term success cannot be achieved if product is the only thing a company is focusing its resources on. At the end of the day, product does not increase your stock price. Product does not prove to investors of that company that the company is moving towards building shareholder equity and shareholder value. Product will sooner or later become out of date, obsolete or useless. However, what does poise a company for success is building shareholder equity and shareholder value.  

How you build shareholder equity is acquiring assets which in turn equates to a tangible bookable asset in the company's books. Once the books are audited then there is no question that the company has X amount of dollars in assets and Y amount of dollars in equity. Now when an investor looks at the company, there is proof in the numbers. Investors believe these numbers because they are US GAAP (Generally Accepted Accounting Principles) standard audited financials.  

This is a proven template that many companies use.  Companies such as Apple, Google and Starbucks all are focused on purchasing assets to build shareholder equity.

When you build shareholder equity, shareholder value increases as well.