This article came to me after Sky News reported that “Network Rail” made £1.2B profit. I have written a strong letter to Sky Management complaining, along the lines of this blog.
First of all, what does this mean to you? It means absolutely nothing to me. It does not tell me if they are doing well, or doing badly.
I think we should encourage all the media to add “on £x capital employed”. Then we would know of the profit was in excess, or was almost break-even. Alternatively they could say “made x% profit” if they want to keep the reporting simple.
Let me explain.
Company A makes £1 billion profit. Company B makes £1 million profit. Who has made the biggest “profit”?
Let us suppose that the capital employed in A is £100 billion and in B is £5M
Here we see that Company A has made only a 1% profit which is bad for the shareholders, bad for attracting incoming investment and is almost a loss.
Whereas Company B has made a 20% profit. Whilst this is good for the shareholders, it is certainly not good news for the customers who have been paying well over the odds.
I do agree that this is over simplification and I am no financial genius but it is enough when the newsreader announces such huge figures in a way that insinuates this is “capitalism at its worse” one wonders what their hidden agenda is!
Without knowing what the capital employed is, I am sure you will agree, there is just not enough information to make a decision on this.
Let us see if we can learn anything from this that we can look at in terms of our own lives.
What my above example shows most of all is that the quality of any decision, or conclusion, you make is reliant on the quality of the questions you ask and the quality and accuracy of the answers you receive.
Naturally, in many areas of life we have to make decisions on almost no available information and here our success rate will always be in the region of 50%. However, whenever possible, always remember that “the quality of your decisions depend on the quality of the information you amass.”
The more questions you ask, and the more accurate answers you receive, help to move that 50% chance of making a correct decision towards a 100% chance.