Dec 15, 2025 | Analytics, Governance, Marketing
Marketers must understand the jargon of the boardroom if they are to contribute meaningfully to the critical strategic conversation. Too often they are sidelined by lack of this understanding, resulting in dumb choices being made by those who think strategy development and the deployment of these strategies is some form of hocus pocus.
Return on Assets (ROA) and Return on Equity (ROE) tell different stories about the quality of the management choices being made.
ROA is a measure of how effectively the enterprise is using the assets it has to generate a profit. It is the ratio of net income divided by total assets.
ROE is a measure of how effectively the enterprise is leveraging the use of the equity, capital supplied by the owners, to generate profits. It is the ratio of profits divided by equity.
Together they measure how well a management is doing at managing the enterprise on behalf of the owners. The major difference is the financial leverage delivered by the debt the enterprise uses to generate profits. The greater the distance between these two ratios the greater is the reliance on debt to fund activities. Conversely the closer they are, the less debt is on the balance sheet. In the absence of debt, the ROA and the ROE would be the same.
Every enterprise faces the choice of funding sources: debt or equity. If they choose to take on debt, or ‘financial leverage’ its ROE would be higher than its ROA only if the company earns more on the borrowed funds than the cost of borrowing.
You will often hear the term ‘financial engineering’. In its simplest form, it is the management of the balance between debt and equity, usually in response to interest rates, and expectations of those rates, and the expectations of dividends to be returned to shareholders out of profits.
I found the following example contained in an explanation of the ‘DuPont Identity’
Imagine a fictional company ABC with the following financials:
- Net Income = $1,000,000
- Average Total Assets = $4,000,000
- Average Shareholders’ Equity = $2,000,000
ROA = Net Income / Average Total Assets = $1,000,000 / $4,000,000 = 25%
ROE = Net Income / Average Shareholders’ Equity = $1,000,000 / $2,000,000 = 50%
In this example, ABC generates $0.25 in profit for each dollar of assets and $0.50 in profit for each dollar of shareholders’ equity. ROE is higher than ROA in this example, as it does not account for all assets, including debt. If total assets were equal to shareholder equity, then ROA and ROE would provide the same result.
As noted, while it may sound like accounting jargon, marketers simply must understand the terminology if they are to avoid being sidelined when it really counts.
Dec 11, 2025 | Change, Governance, Strategy
Federal and state governments now face a steady queue of large, tax advantaged Multinational corporations with a simple message: “Subsidise us, or we shut the gates.”
Jamie Dimon, CEO of JP Morgan recently said at an earnings call: “When you see one cockroach, there are probably more.”
We now see the same thing with corporate subsidies.
Once one bailout appears, a small army of “essential” projects scuttles out from behind the skirting board.
Think about a few recent examples.
Whyalla Liberty Steel receives a multi‑billion dollar rescue package.
Glencore secures support for its Mount Isa zinc smelter and Townsville refinery.
Nyrstar’s lead‑zinc smelter attracts funding.
Arnott’s receives a 45 million grant to ‘shore up their balance sheet’
On top of that you have the fuel tax credit scheme running at around ten billion a year, and a series of Petroleum Resource Rent Tax concessions.
Not every one of these choices fails a hard‑headed test. Some, probably many, will stack up when you count jobs, regional impact, supply chain risks and national sovereignty. However, that does not diminish the simple fact that the only ‘policy’ we have is to be selectively tactical in our response. Little integrated, coherent policy aligned with the long term best interests of the country, that has bi-partisan support.
The problem sits with the ongoing failure of the adversarial nature of our political system, and successive governments to provide a stable and reliable long term investment environment.
Taken together the tactical responses do not look like strategy, but they do look like frantic pest control in a kitchen nobody bothered to design properly.
The cockroaches are running wild, demanding sustenance.
There is a common thread.
Most calls for subsidies exploit the absence of a coherent energy policy, and restrictive, time consuming approval processes, combined with a small domestic market.
Governments then reach for subsidies to keep often extremely wealthy, tax‑advantaged multinationals from walking away with their capital, seeking the best risk adjusted returns elsewhere.
It pits national governments against one another in a global options game, that filters down to regional governments.
In contrast to our ad hoc playbook, China has played a long and highly strategic game with subsidies. For example, they have spent years locking down global supply of rare earth minerals, and Chinese firms now dominate large parts of the EV supply chain. The same playbook has been applied to batteries, solar panels, and increasingly AI.
It is a giant international poker game, and we are a minor player with a few good cards if played well.
We supply resources, are stable politically and economically (despite the problems) and have an educated workforce. However, we have shallow and short term oriented capital markets, so need investment to leverage our natural assets, while rabbiting on about sovereign capability.
For Australian governments to attract mobile capital on sensible terms, we need a different offer.
Subsidies and favourable tax treatment can play a role, but they do not carry the game when they are subject to management by press release, and the loading of investment in marginal seats.
Serious investors look for something more valuable: reliable educated workers, technical capabilities, and reliable institutions, all of which contribute to the certainty that encourages investment.
The strategic dilemma is that competitive countries have a different set of foundational assumptions that deliver competitive advantage.
On one side sit the cheques written to keep multinational operations in place.
On the other side sit the losses in productive capacity, skilled jobs, capability building, and tax revenue if those operations close.
Do our governments, bureaucracies, and political culture have the capability and courage to wrestle with that complexity?
Because until they do, the cockroach subsidies will keep multiplying under the fridge.
Aug 11, 2025 | Governance, Management
Opportunity cost is everything you could have done with the money, time, and focus you’re about to expend on a different course.
In a small business it’s never theoretical: it’s overtime you can’t afford, stock you can’t reorder, family weekends you skip, fancy software that never delivers what was promised. The list seems endless.
Opportunity cost is tough to calculate. It assumes that future benefit from something you did or did not do can be calculated. However, it is often obvious in hindsight, so learning from past misjudgements will assist future choices.
Opportunity cost steals from three of your pockets:
- Cash. Dollars used on ‘X’ would have been better spent on ‘Y’
- Time. The time spent Learning how to use ‘X’ would have been better spent deploying ‘Y’.
- Focus. Our Mental bandwidth is finite. More than one priority at any given time dilutes the return on the time we invest, as well as the quality of the output from that time. Nobody ever went into a ‘flow state’ thinking about two tasks.
For example, deploying a CRM is one of the great hidden generators of opportunity cost, particularly for SME’s. Customers will never thank you for not responding quickly to their enquiry. Failure to do so will erode hard won leads and brand credibility, while the lead evaporates.
Those hits don’t show up in the accounts this month, or quarter. Usually, they do not show up at all, but they quietly compound.
A responsible management asks themselves two seemingly simple yet very complex questions when considering the deployment of any of its limited resources.
- Where else could we spend this resource?
- What are the financial, cultural, and operational consequences of the choice we are making?
Opportunity cost never sends an invoice. It quietly drains the financial accounts, bleeds stakeholder trust, and erodes the energy and commitment of employees. These are significant hidden costs that the best enterprises minimise.
Stop chasing that new shiny object by counting what it will steal.
image by Sora
Jul 23, 2025 | Governance, rant
Last week’s “unintended” Treasury leak about the unsustainable state of the budget fooled nobody who’s been around the block. It is an old trick: float a policy balloon, wait for the howls, then retreat or advance, depending on which way the wind is blowing.
Fiscal discipline? We all cheer for it as long as it doesn’t hit our own slice of the pie.
The Treasurer’s challenge is less about balancing numbers, and more about navigating the swamp of human psychology. We feel the pain of losing a perk much more strongly than the pleasure of gaining it.
Daniel Kahneman called it “Loss Aversion”.
Hand out a benefit to appease a small group, and you’ve just set a trap for your future self. Try clawing it back, and the noise will make a toddler’s tantrum look civil. Ever tried taking a birthday present from a six-year-old? Good luck.
That’s how government spending grows. Drip by drip, group by group. Give out enough trinkets and nobody notices until it’s time to start collecting them back. Suddenly, the losers organise, mobilise, and scream bloody murder, while the rest of us just mutter, shake our heads at the stupidity of it all, and pay the bill.
Take the latest fuss over super accounts above $3 million. Only a handful are affected, but the outrage is theatrical. Why? Because the few that are in line to benefit do not want that benefit stripped away. Meanwhile the vast majority of us will not be affected, but do tend to be caught up in the emotion of being rorted by the government, again, without understanding the facts.
Nobody wants their treat taken away, but most are perfectly happy to see cuts, as long as it’s not their treat on the chopping block.
Maybe we’re just a nation of optimists who secretly believe we’ll all be in the $3 million club one day. Dream on.
The real leak here? Not Treasury’s numbers, but the enduring political tactic: float a “mistake,” watch the reaction, then call it consultation. Mr. Chalmers is no stranger to policy trial balloons.
Header courtesy of DALL-E
Jul 21, 2025 | Change, Governance
Few readers will have heard of Hyman Minsky. However, given the Australian parliament reconvenes in its post-election form tomorrow, it may be time.
Minsky was a prominent economist whose theories, labelled ‘Financial Instability Hypothesis’ were largely ignored until the financial crisis in 2008.
The dominating financial theory before the wake-up of 2008 was that financial markets were generally efficient, reflecting the best information available at any one time.
The financial crisis killed that idea.
Suddenly Minsky’s theory was that markets are driven not by just the available information, but by cycles of greed, fear, and the pursuit of power. (I feel certain that Daniel Kahneman would have agreed)
I wondered if the same cycle could be applied to the Australian body politic and economy.
It seemed an appropriate time for such thoughts, heading as we are into a term of government where the incumbent has a huge majority, and no effective opposition.
So how appropriate is the Minsky cycle to the current political and economic environment the Albanese government faces?
In the aftermath of the election, aware sentiment can change quickly, the Government surprises, and turns risk averse. After all, they now believe they have several terms to ‘get stuff done’, and do not control the Senate. This starts to create frustration in the electorate, as it seems obvious that genuine change is more possible now than for the last 30 years. Only vocal interest groups are scaring the government into inaction. The presence of such hoarding of political capital provides the catalyst for a renewed opposition to effectively attack the inaction on pressing issues.
The cynic in me assumes that none of the challenges we face as a country will be adequately addressed. Politics has devolved into a Ponzi scheme of elaborate lies, misdirects, and inaction. The focus is on gaining and keeping political power for the sake of the power, not for the long-term betterment of the country.
The optimist in me is tempted to listen to the practiced rhetoric of the two leading Labor figures and think: ‘perhaps this time’.
The header is my adaptation of the Minsky cycle reproduced below.
With apologies to Hyman Minsky.HET: Hyman P. Minsky
Jun 20, 2025 | Change, Governance, Innovation
Australia’s governments over time have, rightly, believed that the commercialisation of innovation is the key to long term prosperity.
As a result, governments of all persuasions and at all levels dole out billions each year in all sorts of grants, subsidies, and parallel programs.
Then, on a regular basis we have enquiries by well meaning and usually highly qualified people that come up with similar conclusions that the previous few and often very expensive enquiries have delivered: we are crap at it.
In successive weeks, the PM and Treasurer presented their view of the challenges facing us at the National Press Club. Both were very impressive performances, and in particular the treasurer hooked his agenda firmly onto the ‘Productivity’ challenge.
The Treasurer outlined the principles of his agenda. However, he did not get into the weeds of the sources of the failure to date that see us struggling with productivity in the economy, the problem to be solved. He did however acknowledge that hard to measure services are increasingly dominating, and we are all getting older, making the productivity challenge that much greater.
Sensibly after repeating the same mistake numerous times, and ending up where we are now, we should be asking ourselves ‘Why’.
My take on ‘Why’.
Bureaucracies have two conflicting, irreconcilable imperatives:
- On the one hand, they want to be fair and treat everyone the same. This makes commercial in confidence often challenging. (perhaps I overemphasise this as a result of a very nasty incident in my commercial past that will never be forgotten)
- On the other hand, they want to exercise discretion and take account of individual circumstances and technical advances made by program participants engaged in the various programs.
There’s no way to easily optimise these conflicting objectives at the same time.
On top of those two drivers of bureaucratic fossilisation, you have two further impediments in the Australian context:
- The impact of personal ambition, turf protection, and management of public sector KPI’s that have nothing to do with outputs, but everything to do with inputs that hobbles public sector engagement.
- Our federated system drives fragmentation.
Published today is an excellent analysis of the way forward by John Howard (not that one) from the Action Institute that I hope is widely read and deeply considered by those who will be involved in the treasurers productivity roundtable in August.
