# Financial Targets as a Business System ## Targets are strategy made legible, not guidance REQ surveyed the published financial targets of ~60 Nordic acquirers (REQ, Jul 2025, p.51–54). The findings are more interesting than the table: - **No correlation** in how companies use financial targets. - Companies with a longer track record include **dividends** in their targets. - **Leverage** is the most commonly communicated target of all. - Only **two** companies measure sales and profit growth *per share* — Volati and Vestum. Addtech, Lagercrantz, Lifco, Indutrade and Bergman & Beving don't say "per share" — but they never issue shares either. - Very few publish any **capital or equity return** target at all. - Recently listed rollups favour **absolute-number** targets: Addvise, Norva 24, BHG, Humble Group, Soltech, Stillfront, Sdiptech, Swedencare, Vo2 Cap. - The Bergman & Beving family — Addtech, Lagercrantz, Addlife, Momentum Group — measure **return on working capital**, pushed from top management down to the lowest business level. See [[Profit over Working Capital]]. > [!warning] The generalisable warning > Targeting sales or profit in absolute numbers is dangerous when coupled with dilution or with high operational and financial risk. And a target the company cannot reach is worse than none — it gets punished by the market and corrodes management internally (p.53). ## The historical exemplars **Halma, David Barber (1997 strategy speech):** a deliberately self-financing group targeting EPS growth of 20–30% compound, later redefined as **15% plus inflation** — the overriding corporate objective. To achieve that in an inflationary climate they determined they needed an average **ROCE of 40%**. His method was mix: simply do less of anything returning below target and more of what returns above. > [!quote] David Barber, Halma > Once you have created and find yourself running a group with such a high rate return on capital, it is a position you will relinquish only with extreme reluctance. **Atlas Copco, Tom Wachtmeister (1980 annual report):** "minimum good profitability can be defined as a return on capital employed that exceeds the inflation factor by 5 percent." **Nibe (1999 annual report)** — four targets REQ holds up as the shareholder-friendly template: - Average year-on-year growth of **20%, half of it organic** - Average annual operating profit of **at least 10% of turnover** for each of the three business areas, over a cycle - Average **ROE of at least 20%** after standard tax, over a cycle - **Equity/assets ratio not below 30%** Note the shape: growth, quality of growth, return, and a solvency floor. Four numbers, over a cycle, all understandable by a subsidiary manager. > [!tip] What good looks like > Aligned with capital allocation priorities; reflecting the equity story; usable *inside* the organisation; durable through cycles yet dynamic; realistically set (p.53). ## Why it matters Published targets are the cheapest read on management's real strategy. Absolute revenue targets plus equity issuance is a specific, recognisable failure pattern — route it to [[Red Flags in Serial Acquirers]]. ## Related - [[Acquisition-Driven Compounders MOC]] - [[Profit over Working Capital]] - [[Red Flags in Serial Acquirers]] - [[The Compounder Screener]]