Deloitte debuts "The Exceptional 100" and introduces a multidimensional method to measure corporate financial performance

New approach weighs multiple metrics providing a more accurate determination of "exceptional" than current standards; Fewer than 10 percent of 5,000 plus U.S.-based publicly traded companies qualify

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Deloitte

Jan 13, 2015, 08:30 ET

NEW YORK, Jan. 13, 2015 /PRNewswire/ -- Deloitte launched a proprietary approach to measuring financial performance and released a list of 100 U.S.-based publicly traded companies, which are identified as top performers based on this method. "The Exceptional 100" breaks from current measures of performance by employing a multidimensional approach and focusing on the company-level factors that drive financial outcomes. The result is a holistic perspective on a company's economic performance. Using this method, the following companies top The Exceptional 100 list: Copart Inc., followed by Hershey Co. and Panera Bread Co.

"Current methods of evaluating corporate financial performance can be unnecessarily incomplete and disconnected," said Michael E. Raynor, director at Deloitte Services LP, and one of the lead researchers on the project. "There are essentially three ways in which a company can deliver exceptional outcomes: through profitability, through growth and through shareholder value. Although it is useful to know where a company stands in each of these measures individually, we believe truly exceptional companies have beaten the odds over a period of time, and have consistently outperformed on multiple measures simultaneously."

Unique, proprietary and powerful

The Exceptional 100 is based on three features of financial performance that are often overlooked:

Financial performance is multi-dimensional: The Exceptional 100's proprietary analysis takes three core measures of performance — profitability, growth, value — plus their various combinations — "profitability and growth" and "growth and value," etc. — thus gauging performance on a total of seven measures.
Relative performance matters: Performance is often viewed from either an absolute perspective, or against a limited set of competitors. The Exceptional 100 is based on a little-used but very powerful statistical method called quantile regression that draws on all of the available data while still accounting for the impact of year, industry, and size on a company's performance. It then translates a company's performance in each year into a percentile rank within the broader population of publicly traded companies.
Chance must be separated from skill: It is easy to label a single year's financial performance as superior. However, we believe to be truly exceptional, a company must demonstrate that it can beat the odds over a period of time. The Exceptional 100 uses modeling techniques that draw on hundreds of thousands of data points collected over five decades (1966-2013) and millions of simulations to separate the skilled from the merely lucky — without imposing arbitrary time periods.

"Understanding each of these elements is critical to setting and achieving appropriate performance improvement targets," said Raynor. "Because there is no one measure of financial performance that captures everything that matters, managing financial performance means understanding how well a company is performing on multiple dimensions in order to determine which elements need improving."

According to the companion research report, "Charting Superior Business Performance," co-authored by Raynor and Mumtaz Ahmed, chief strategy officer, Deloitte LLP, understanding relative performance is both critical to successfully improving performance and widely misunderstood.

"Our research found that up to 80 percent of managers either over or underestimate their company's relative performance or percentile rank," said Ahmed. "This misunderstanding can lead to misplaced efforts, such as an unnecessary focus on aggressive cost-cutting, as opposed to increasing margins through strategic differentiation to improve long-term profitability. Our hope is that The Exceptional 100 study will help managers better understand this critically important dimension of their performance and will help them better focus their performance improvement efforts."

A single-year's results are rarely significant to observers of corporate performance and there is little agreement on the time period over which stand-out performance reveals itself. "It's common to pick three, five, 10 and even 20 years," said Raynor. "But these choices are needlessly arbitrary. Our statistical method uses modeling techniques that allow us to infer more meaningful time periods that are specific to each performance measure. As a result, we can identify those companies that are quantifiably likely to be 'more than just lucky'."

Deloitte has used its method for analyzing corporate performance to characterize the results of every U.S.-based, publicly-traded company since 1966. The top 100 companies as of 2013 (the most current data available for a large population of companies) — The Exceptional 100 — are identified at www.exceptional.dupress.com/. The website includes:

A sortable list of The Exceptional 100 companies;
Customizable charts that allow users to compare performance trends across industries and sectors;
An interactive performance lookup that allows users to estimate a company's relative performance and estimate its likelihood of achieving specific performance improvement targets;
A wealth of additional research on how companies can become exceptional.

Follow @DU_Press and @meraynor for further insights and applications of The Exceptional 100 and to participate in the #Exceptional100 conversation.

The Exceptional 100 Methodology
The Exceptional 100 is a proprietary analysis of all 5,000-plus U.S.-domiciled publicly traded companies active in 2013. The analysis combines seven measures of performance (growth, value, profit and their four combinations, "profit and value," "growth and value," "growth and profit," and "value and profit and growth") with quantile regression analysis that allows for a broad measure of how companies stack up against each other over time. The Exceptional 100 also uses proprietary modeling techniques that draw on hundreds of thousands of data points and millions of simulations to determine the impact of randomness and luck on each company's performance. For more information on the methodology, please visit The Exceptional 100.

About Deloitte Consulting LLP
Deloitte helps organizations grow their businesses and enhance value by identifying actionable insights. More than 23,000 professionals provide a broad range of capabilities across human capital, strategy and operations, innovation, and technology that are aligned to the particular needs of specific sectors, businesses and organizations. Deloitte provides clients with leading business insights that can help generate a tangible and measurable impact.

As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see http://www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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