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The market economy in financial development analyzes mainly at the micro level, that is, at the level of large enterprises, and in this work, start-ups. Investors always need to understand that this is a disease-susceptible project or business idea. To do this, there is a financial analysis and a number of special parameters that must be understood in order to understand the relevance of launching a project. If the project is effective, therefore, its ideal.
At the moment, the number of entrepreneurs in the domestic market is at an exponential maximum, but people have not yet decided how to analyze their projects. In modern economic conditions, the activities of each business entity attracts the attention of a wide range of market participants (organizations and individuals), identifying in the presence of their activities. Accounting information is expected, these people assess the financial position of the company. The use of financial analysis in this plan, with the help of which it is possible to objectively assess the scale and external relations of the objects of analysis: to study their solvency, efficiency and main profitability of activities, development prospects, decision-making based on income. But how to determine the structure of the development of a startup with jaundice has not yet been learned. Therefore, evaluation of such projects is necessary.
All of the above is the relevance of the chosen topic.

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My research includes the following tasks:
1) Consider the main criteria for evaluating metrics for investors;
2) Determine the main criteria for evaluating metrics;
3) Display a scale for evaluating projects;

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Bernardo Arnaud, The most common ways on how to evaluate early-stage companies, 2018

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Bernardo Arnaud, The most common ways on how to evaluate early-stage companies, 2018

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https://www.eu-startups.com/2018/10/the-most-common-ways-on-how-to-valuate-early-stage-companies/

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In the 21st century, there is an increased popularization of investment activity, which is why in the economies of many countries this process began to dominate and take a leading position among the financial activities of subjects. This is due to the fact that investing is able to provide a future influx of profitability.
By investment, many mean relatively different, but similar concepts, but the essence is always the same. When investing in the beginning, you need to make some kind of investment in order to further increase your resources. The time period of this process can be different, sometimes it is a short-term period, and sometimes a long-term one.
The excitement in this area of economic relations is associated with raising the general level of financial literacy of the population, as well as with the opening of tools for non-professional players in the market. Previously, the professionalism of a market participant was necessary, since it was necessary to rationally assess the situation on the market, as well as to avoid the variability in the course of the share price, as a particular example.
At the moment, absolutely any citizen can open an individual investment account in the Russian Federation if he is over 18 years old. But if we talk about investments on a larger scale, like venture capital, then the situation is very complicated and ambiguous.
There are many companies in the domestic market that are engaged in venture investments, as well as promoting business development. For employees of companies, the situation is easy, since all the algorithms and processes have already been worked out and just require minor adjustments depending on the situation on the market. If we consider companies and projects that are involved in obtaining investments, then everything is much more complicated.
To receive investments, an organization must meet a number of criteria that are evaluated by business angels. The evaluation of organizations and projects correlates with behavioral economics, since the process itself resembles mathematical games, the outcome of which is sometimes impossible to predict. For this, methods of evaluation and weight categories of criteria were developed. Different criteria are used for different purposes.

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Gordon Donaldson, Financial Goals and Strategic Consequences, 1985

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Gordon Donaldson, Financial Goals and Strategic Consequences, 1985

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https://hbr.org/1985/05/financial-goals-and-strategic-consequences

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One of the primary responsibilities of the CEO of any major corporation is to articulate the company's financial goals as a tangible focus for its business mission and strategy. In theory, these goals are imposed by shareholders through stock market responses to company performance. In practice, they are deeply rooted in the CEO's values and political philosophy, and they draw persuasive power from the depth of that conviction.

Despite this power, and because a company's financial goals are so visible and tangible, they often become the focal point for tension and dispute at the higher levels of the organization. Consider the way that two numbers-return on investment and rate of sales growth-came to symbolize opposing views of the corporate strategy and environment in Company A.

Company A has been a leader in its field for several decades and remains highly regarded by the financial and investment community as profitable, reliable, and conservative. During the 1960s and early 1970s, its CEO knew exactly what the corporate and financial goals should be, and held onto them with unswerving commitment. He saw Company A as an unchallenged leader in technology and product innovation. His was a simple standard of excellence: return on investment. "I don't care about sales growth," he would say. "Give me technological leadership and the promise of a superior ROI, and growth will take care of itself."

For much of his tenure, he was apparently right. The company's profits more than satisfied required funds for investment, and Company A accumulated substantial financial reserves. The CEO's leadership was strongly supported by the board and applauded by the financial community.

One level down, the manager destined to be the CEO's successor had a different vision of the business. As he rose through the ranks of line management, he saw a number of the company's principal product lines gradually mature and their markets develop the traits of a commodity; high sales volume, low costs, and declining profit margins now characterized a sustainable competitive position. Success depended more critically on market share.

For this manager, the corporate growth rate was equal to, if not more important than, ROI as the focus of corporate strategy. Without a growth rate that matched or exceeded that of the industry, Company A's market share would not only decline but so would its potential to maximize ROI. In contrast to his boss, he would say, "Give me a superior growth rate and ROI will take care of itself." The opposing views produced a persistent tension at the top of Company A, a tension that was resolved only when the new CEO took over.

This article is based on a three-year research study, undertaken with Professor Jay Lorsch of the Harvard Business School, of the formation of corporate goals in 12 large U.S. companies. Each is a mature, well-managed industrial organization of large aggregations of human and financial resources, with significant economic and social consequences for the society it serves. Each manufactures and sells a range of products and represents a different industry, from basic raw materials to high technology. Some are privately owned, but most are publicly traded on the major stock exchanges.

The companies granted unrestricted access to corporate documents and management personnel. We examined the financial planning and goal-setting process over at least ten years of the most recent company history. The research team interviewed all members of top management involved in key decisions. Particular periods in each company's history or events that represented a significant change in business mission, strategy, or goals became the focal point of research. Although what was said in interviews and in company documents was important, management deeds and behavior provided the most insight into what was really going on. We gave each company an opportunity to review our findings, but they neither requested nor made changes.

As the individual company studies progressed, patterns of behavior began to emerge, some of which were consistent with research expectations and some not. In the end, certain preconceptions about corporate goals and setting were radically revised. The findings, in the authors' opinion, differ significantly from the teachings of standard organizational and financial theory. Though the research sample and the data cannot be described as conclusive, they represent a valid basis from which to challenge a number of commonly held beliefs about corporate goals on the part of both academics and leaders in the business community.

In fact, both executives may have been right-for their time. In a new-product market, companies with a proprietary entry-level position can demand superior returns as a condition of investment. As competition erodes that position, however, companies can succeed only if they continue to fund the investment necessary to maintain a healthy share of market even when that is accompanied by a declining ROI.

My study of organizations like Company A has revealed certain characteristics of the corporate financial goals system that have often been overlooked and that contribute to misunderstanding of the goal-setting process. For example:

Contrary to popular belief, companies do not put maximum profit before all else. In practice, no absolute or eternal financial priorities exist; they change as the economic and competitive environments change.

Mature companies assign priorities to multiple financial goals based on the relative power of the economic constituencies represented by these individual goals-whether capital or product markets or the market for human resources.

Companies do not have an inalienable right to "dream the impossible dream" and set any goal. From the moment a company decides to enter a particular segment of the product or capital market, its competition imposes limits and sets conditions on the goals it can realistically attain.

Managing a company's financial goals system is an unending process in which competing and conflicting priorities must be balanced. At any point, the system is potentially unstable because of the changing corporate environment and shifts in power and influence among constituencies.

A company's internal capital market must continuously try to reconcile the demand for and supply of funds. It imposes an impersonal and objective discipline on the conflicting goals that affect the flow of funds and requires that those driving demand balance with those driving supply. An executive cannot change any goal without considering the impact on all others.

Most managers find it difficult to understand and accept the entire goals system. Although financial goals appear objective and precise, they are in fact relative, changeable, and unstable. Moreover, subordinate managers normally see them from the limited perspective of their immediate responsibilities. Even top executives, tending to be more disposed to one constituency as against another, have difficulty accepting this system as a legitimate political compromise among these competing and conflicting priorities. Managers widely regard their company's financial goals system at best as capricious and at worst as inconsistent and even hostile. Though they may dutifully salute when the system is run up the flagpole, they harbor dark thoughts about whether it truly represents their self-interest.

I hope this article will contribute to a better understanding among all members of the management team of the nature and operation of a financial goals system. Although the members will no doubt continue to differ in their views of the correct priorities, they should understand how the system works, that objective boundaries on management choice exist, that goals are interdependent, and that a change in one goal always necessitates a trade-off with another.

How the System Works

A company's planning process sets a number of corporate goals in response to different priorities. Headquarters tries to include something for everyone as it exhorts the company to: grow aggressively in promising market segments; stay number one in product quality, markets, and technology; attract and hold superior management and technical personnel; diversify; provide a stable revenue stream, a superior return on investment, steady dividends, a superior price-earnings ratio; and maintain a conservative debt policy. Headquarters views these goals both as supportive of the company's broadest mission and responsive to the needs of investors, managers, employees, customers, and host communities.

Why do top managers expect so much? Aren't they aware that no one company can accomplish all this without compromise? Obviously they know. But many sincerely believe that all members of the extended corporate family share the same interests, that they agree that what's good for one is good for all, and that they will understand if their particular interests sometimes have to take a back seat.

In a world of scarce resources and finite horizons, however, such altruism does not always exist. Certainly in the short run, someone's self-interest must bow to the greater good. But for many of the parties involved, the short run-or a series of short runs-is the only long run. Everyone learns that economics does not ensure the equitable distribution of the corporation's ultimate benefits.

The company has to make trade-offs. Take its relations with the capital markets. Only a few companies, and then for only brief periods, so capture the attention and enthusiasm of the equity markets that they receive the equivalent of a blank check for new investment. For the majority, the public capital market window appears to open and close at random, without regard for their individual needs. The feeling of that window coming down on their fingers has instilled a spirit of self-sufficiency in many managers. To fuel growth, they rely primarily on internally generated funds coupled with conservative debt limits linked to the equity base. Reliable funds, even in large, mature, and successful corporations, are finite.

The Self-Sustaining Model

All corporate goals that affect the flow of funds within a company are the result of both explicit and implicit trade-offs among competing interests. A company can express these goals-and the trade-offs-quantitatively. The graph in Exhibit I reduces the goals system in a typical company to four key variables: the targets for sales growth and return on net assets (RONA) and the ratios for dividend payout and debt-equity. Although other goals can be included to enhance the graph's sophistication, I begin with a simple model to show the primary goals and the basic technique. (For an explanation of the formula on which this graph is based, please see the Appendix.)

Exhibit I A Balanced Financial Goals System

The idea that a company's financial goals system can reach equilibrium if the goals that drive the aggregate supply of funds are in balance with the goals that drive the demand for them can be represented by the self-sustaining growth equation shown below. Included in the mathematical formula are all the principal elements of the internal financial system of a company as it relates to its established product markets.

My research has found that the equation illustrates a fundamental assumption of management: that a company should expect to fund the long-term growth in its established product markets from retained earnings supplemented by a conservative amount of debt. In fact, five of the companies studied used some form of this equation in their financial planning:

g(S) = r[RONA + d(RONA - i)]

where:

g(S) = growth rate of sales

r = earnings-retention rate

d = debt-equity ratio

i = after-tax interest rate on debt

RONA = return on net assets (return on investment)

The diagonal line in Exhibit I defines the acceptable pairs of growth and RONA targets for self-sustaining growth in a company with a debt/equity target of .50 and a dividend payout target of .30. (The after-tax interest rate is assumed to be 6%.) These numbers define both the slope and position of the line as well as the division between the deficit and surplus sectors. The example makes normal planning assumptions: a stable ratio of sales to assets and assets to net assets, a replacement cost of the existing asset base no larger than the amount of the depreciation charges, and a moderate rate of inflation.

The graph shows the relationship of demand-related goals (driven by growth rate of sales) to supply-related goals (driven by the corporate return on investment as it is reduced by the amount paid to stockholders and enhanced by the company's individual debt level). The graph demonstrates that, given a company's particular dividend and debt policies, its financial goals system will be self-sustaining only if its growth and ROI targets can be represented by a single point on the diagonal. If a company had no debt and paid no dividends, the slope of the diagonal would be 45°, the diagonal would divide the graph in half, and the return on net assets would equal the return on equity. In that case, if the company's rate of sales growth was equal to RONA, it would be self-funding.

In Exhibit I, however, RONA is affected by both debt and dividends, and it must be greater than the rate of sales growth in order to fund the company without recourse to capital markets. For a growth rate of 10%, unless this particular company's RONA equals or exceeds 11.5%, there will be a deficit of internally generated funds. Of course, management can choose any pair of growth and ROI targets in the space between the two axes. But, for example, if this company were to target a sales growth rate of 16%, and a RONA of 12%, it would imply a significant funds deficit-an unsustainable strategic position in the long run, if not in the short run.

A company's debt and dividend policies define the slope of the line of corporate self-sufficiency and its points of intersection with the axes. A more aggressive debt/equity goal combined with a lower dividend payment would expand the area of surplus, shrink the area of deficit, and raise the growth potential of any given RONA.

Top managers can use this kind of graph to communicate the meaning and discipline of an integrated set of financial goals to subordinates and to track performance against goals. The graph shows the impact of the trade-offs constantly necessitated by competing goals and objectives.

Unbalanced Goals

To help guide its senior managers, Company B developed a statement of corporate mission and goals that contained 24 items. Some had a direct bearing on the nature, magnitude, and rate of new investment: the CEO targeted certain product lines for rapid development, the achievement of a specific share of market and rank in the industry, rates of growth in volume of operations, a balanced portfolio of business activities, and overseas expansion. Others focused on the sources of new investment funds: the target return on investment, the rate of profit growth, the proportion of retained earnings, dampened cyclicality of earnings, maximum debt levels, and minimum bond ratings.

The CEO expressed some goals in qualitative terms but quantified others, which I have depicted in Exhibit II. The 18% growth rate and 14% RONA target chosen by the company are at the intersection of the grid dividing the graph into four performance zones. The line of self-sustaining growth dividing the deficit and surplus sectors is defined by a target debt-equity ratio of .33 and a target earnings-retention ratio of .67.

Exhibit II Company B's Performance Against Goals 1970-1978

Why an Imbalance?

The graph makes clear that an imbalance in the company's goals system resulted in a substantial funds-flow deficit. Why? Was this imbalance deliberate or inadvertent? Such a deliberate cash flow funding strategy can be supported by liquid reserves, underutilized invested capital, or an acquisition. Management cannot, however, sustain such strategies indefinitely. In this case, the imbalance resulted when management developed each goal in response to pressures of the moment. Moreover, the performance criteria of each lay outside this particular goals system.

To ensure better than average sales growth, for example, management set its target growth rate as an arbitrary multiple of real growth in GNP. At the same time, the company's goal-to be number one in each product market segment-implied that the company would meet or exceed the growth rate in each product industry. Nothing in the planning process guaranteed that these two growth concepts would naturally or necessarily converge.

The supply side of the funds-flow equation held unresolved inconsistencies as well. The company tied its earnings growth to sales and, hence, GNP. On the other hand, the ROI target was more arbitrary, chosen to be in advance of current performance and linked to past achievement. The company had not tested whether the two goals were consistent, yet they were obviously linked.

By themselves, the goals made perfect sense. Each had a sound organizational and economic rationale. Each would legitimately contribute to the health of the business. Each represented a piece of corporate reality. But management failed to recognize the consequences of their interaction for the flow of funds. They could not all be attained. Management had failed to choose among them, to make trade-offs. And the imbalance shown in Exhibit II was the result of management's oversight.

Of course, any company's year-to-year performance will often miss its target, at times by a wide margin. In the short term, management may have to make deliberate trade-offs between growth rate and RONA. Accelerated growth often entails accelerated, up-front investment, increased costs, and a possible shaving of profit margins to gain market share. Economic and competitive vicissitudes also produce unexpected swings in performance. Nevertheless, a corporate target's central function is to direct all managerial decisions and actions toward Zone II-where both primary goals are exceeded.

Judged by past performance, Company B's financial goals, if achieved, would set new highs. From 1970 to 1978, however, the company never penetrated Zone II, although it appeared within striking distance in 1978. The diagram shows how sales performance failed to dampen cyclicality, how the recession of 1974 and 1975 damaged both growth and ROI, and how Company B operated at an unsustainable deficit and was, in a sense, bailed out of the problem by the recession and its enforced retrenchment. The years 1976 and 1977 were important because, with a RONA of 12% and a sales rate of 9%, the company stood very close to what its target should have been for a balanced goals system (assuming the company's RONA was at or near the maximum potential of its collective industrial environment). If the existing goals system was going to survive, however, the next few years would have to show a radical change from the past.

Unbalanced goals and unbalanced performance strain a system's credibility-and viability. In time the relationship of target growth to target ROI proves unbalanced and one emerges as dominant. If Company B is committed to its 18% sales growth rate, but unable to generate the 22% RONA necessary to fund that growth on a sustained basis, then management's initial response may be to try to decrease the potential funds deficit by raising debt or lowering the dividend payout.

Is There a Way Out?

In this case, the gap is too great. We can measure the magnitude of the required shift. It is beyond reason. Company B would have to raise debt levels from the target of 33% to 134% of equity. Alternatively, the earnings-retention ratio would have to rise to 1.05 from a target of .67-an obvious impossibility. While a combination of the two targets is theoretically possible, it would be impractical or only partially successful in balancing the flow of funds. To sustain these goals, the one remaining option is to turn to the external capital market.

Ultimately, the drive for growth and needed expansion of investment will collide with the risk-return preferences of the capital markets and the availability of further investment on the part of lenders and shareholders. My research suggests that-having pushed the limits of internally generated funds and conservative debt and dividend payout policies-most companies have preferred to scale back growth rather than go to the public equity market for the further funding of established product market positions. Over the period I studied them, the 12 companies in my research sample made only two issues of common stock for cash.

Whether any company could sustain such a high degree of financial self-sufficiency over the next decade remains to be seen. Inevitably, the accelerated inflation of the late 1970s and its potential resurgence in the 1980s will require the aggregate U.S. corporate asset base to be funded again in the domestic capital markets. To the extent that companies will have to go to the equity market again to fund the established asset base, they will find it more difficult to use equity concurrently as an attractive vehicle for expansion and for acquisitions to support their diversification.

What Drives the System

By recognizing that all financial goals are interdependent, a company soon learns that a change in one demands a compensating adjustment somewhere else in the funds-flow equation. Where that change originates and what goals drive or dominate the financial goals system are the next important questions to answer. Academics and CEOs have nurtured the belief that shareholder wealth and return on investment are a company's ultimate priorities at all times. But that belief is not supported by my observations. I do not want to suggest that ROI is not critical; only that it and related goals that represent some version of the stockholder interest do not at all times drive the flow of funds. In fact, a preoccupation with one constituency or one goal distorts the reality of the diverse communities to be accommodated.

As a rule, market priorities are crucial to any corporate strategy and will tend to dominate the financial goals system and any change contemplated. Exhibit III characterizes a typical life cycle of the changes in corporate priorities.

Exhibit III The Life Cycle of Corporate Financial Priorities

Consider a single product market company operating in a highly mature and competitive industry (Zone IV). Both sales growth and ROI performance are below historic levels. The company may or may not be able to fund its own growth (position 5 versus position 1).

Some of America's basic smokestack industries have been in such a situation recently. In these cases, the near-term priorities of the product market have driven the financial goals system. At a minimum, the company feels impelled to grow at least as fast as its industry in order to preserve if not increase market share. It will also reinvest in existing facilities to maintain or improve efficiency and cost effectiveness. The rationale is basic: in any game, you're in until you're out, especially if you think it's the only game in town. According to the best American competitive traditions, when you're number two-or five or ten-you try harder.

The Strategic Cycle

At some point, however, other organizational variables-such as the need to attract and hold superior management-render such conditions intolerable. The company may move to escape the relentless investment imperative of its traditional industry base. The degree, direction, and method of this diversification vary from company to company, whether internally or by acquisition.

Expressed in the terms of Exhibit III, the company is moving from Zone IV to Zone I. Ideally, it is searching for both higher growth and ROI. Both can be most easily accomplished by moving performance along the diagonal. Frequently, however, growth and investment precede ROI and may even require its near-term sacrifice. The company must penetrate new and unfamiliar product markets to establish a profitable and stable market share.

In the case of Company A, mentioned at the outset, a change in priorities grew out of the competitive evolution in its product markets. By insisting on the absolute priority of ROI, the first CEO had driven Company A into Zone III (position 4), where it had a highly liquid balance sheet. Recognizing the maturity of the product market, his successor sought to take the most direct route to Zone I (position 2) in order to avoid the unacceptable alternative of position 5. In fact, Company A's large liquid reserves allowed it to operate for some time in the deficit cycle from position 1 to position 3.

Companies without liquid reserves or financial slack cannot operate in Zone I with superior growth rates but inferior returns for long. At some point, they will feel great pressure to shrink the deficit by either increasing the debt-equity ratio or lowering dividend payment. But the dormant concerns of the capital market constituency will be roused by such actions. Lenders will see their limits of creditworthiness stretched, or shareholders will feel that their norms of the rate of reinvestment of earnings have been exceeded. Capital markets will press for more attention to their priorities.

If the company diversifies by acquisition and resorts to equity securities as the medium of exchange, it will be most sensitive to capital market priorities. Capital becomes critical. Thus by initially responding to product market forces and priorities of growth and diversification, the company becomes more dependent on the external capital market, and must then reemphasize ROI and shareholder benefit as the price of that dependency.

If the strategy succeeds, the company eventually will reach position 3 or 4 in Zone II or III. After regaining self-sufficiency, the company can move again to a more conservative debt policy or increased dividend payout. It will then become less dependent on the external capital market and the priority of its goals.

Few companies can follow this path without a number of unexpected twists and turns. Nonetheless, this model helps point out how strategies evolve and how the priority of financial goals shifts in response to a changing corporate environment.

To Diversify-or Not?

Financial self-sufficiency is a natural and appropriate prerequisite for a high degree of managerial independence. Whatever the merits from society's perspective, the American industrial corporation has been able to create its own private capital market. When all goes well, it assures a minimum of external financial discipline. Of course, freedom from external discipline is a matter of degree, but corporate financial management has as its implicit, if not explicit, objective decreased dependence on capital market uncertainty and interference.

Another element in the achievement of corporate and managerial independence is diversification. A number of corporate critics have questioned whether the recent spate of corporate diversification by acquisition or merger is appropriate. Such concern is not new. Most mature companies pursue diversification at some stage in their histories and inevitably suffer conflicts between the interests of stockholders and those of the organization and its professional managers. Though they often couch their motives for merger in terms of stockholder interest, managers pursue diversification because such a strategy:

Lays the foundation for an internal capital market that affords the company a high degree of financial self-sufficiency over a long period of time.

Stabilizes corporate income and ensures more efficient use of human and financial resources.

Allows the organization to survive the inevitable demise of particular product markets.

Such objectives are rational and justifiable. Society should value them. Diversification, however, can impose some cost on the community of professional investors by: reducing the number and variety of investment vehicles accessible to the individual portfolio, reducing the information available on individual corporate units, and at times placing resources in the hands of managers with inferior objectives or ability. A professional investor doesn't need the diversification benefits that reduce risk through merger or acquisition, benefits valued by the undiversified management of the acquiring or acquired company.

Nor is the investment community the only potential loser. Widening of the company's earnings base with multiple sources reduces the power of any one consumer, competitor, or employee to discipline the management decision process.

A Winning Move

A national commodity food producer and marketer embarked on an ambitious diversification strategy shortly after World War II. Its technology was simple and mature, the market highly competitive, profit margins narrow, and growth modest. New postwar management decided to undertake a radical change. While rationalizing the production and distribution facilities of existing products, the company began aggressively to acquire food and related products for national or regional distribution.

Over ten years, the company became highly diversified; the original product came to represent only a modest share of its sales. Though management admitted it had made some mistakes, it regarded the strategy as a success. During the initial period of rapid diversification and growth, the company's price-earnings ratio was superior but declined to average levels after the program was completed.

Not all diversification strategies are this successful; everybody won, from the organization and its managers to the original shareholders (if they hung on long enough and sold out soon enough). The shareholders won, not because the company had reduced their risk by diversification but by its shrewd selection and good management. Instead of getting out of the original one-industry company and diversifying on their own, they stuck with management and took a chance that it would do a better job in the long run.

There was one loser: the members of the original product market constituency who lost bargaining power and influence. Previously they had held the power to dominate corporate priorities since their cooperation was essential to organizational survival. In the diversified company, that power was gone. Management could now, if it chose, abandon the original product market without seriously threatening the organization.

Sometimes, diversified companies carry the goal of financial self-sufficiency-essential to the organization as a whole-indiscriminately down to the divisional or individual product market level. One company went so far as to tell its product market managers that their failure to earn a return capable of supporting their individual growth was "proof of second-class citizenship."

In fact, individual product market positions may appropriately function, at any given time, in surplus or deficit mode. To require the self-sufficiency of all product market positions is to deny not only reality but also one of diversification's primary objectives-to make an orderly transition from an income stream that has dried up to one that is still abundant. The phase-out of a mature product position should ideally coincide with the phase-in of an entry-level position in a high-growth industry, which will operate at a deficit. In practice, of course, the financial goals system is designed to motivate as well as discipline. Like a parent, management often becomes impatient for its infant product positions to grow up and become self-sufficient, thus assisting in the support of the younger siblings.

What Is Financial Reality?

Heated debate has raged over which financial goals govern corporate management, whether they are imposed from without (by myopic investors) or developed from within (by career managers), and whether they serve the best interests of the company and society. I have found that the issue cuts deeper than the familiar question of whether short-term financial priorities distort the resource allocation process.

A company's goals do not exist in a vacuum. Inevitably, they confront the reality of the existing corporate environment and established strategy. A serious inconsistency with that reality threatens the discipline of the system. In such cases, either management persistently rationalizes and ignores discrepancies between goals and performance or, worse, warps actions and reported results to meet expectations.

In the near term, financial goals are largely set for-and not by-management. They may result from past strategic decisions that placed the company in a certain product market, involved it in a long-term lending arrangement with a particular institution, made certain contractual commitments, or designed a particular organizational structure to effect the strategy. These things together determine an environment that imposes a set of specific and objective financial conditions of successful performance. These realities dominate the design of the goals system in the short term. Following naturally from the implementation of the existing competitive strategy, they remain in place as long as the strategy continues. Existing market forces outline required rates of growth and return as well as debt and dividend constraints. Competitive environments narrow the limits of choice.

Much confusion often results, however, from the indiscriminate mingling of short- and long-term goals. Implementation of the existing strategy in existing product markets determines short-term goals, while new strategic directions implicitly or explicitly map out new long-term priorities. The difference in time frame depends on the time necessary to implement strategic redirection in product or capital markets, organizational structure or staff. For companies whose current competitive environment satisfies long-term expectations, this issue represents a distinction without a difference. For managements or investors dissatisfied with near-term performance, however, it is important to keep the two horizons and their related goals systems separate.

Whether qualitative or quantitative, long-term goals relate the company's performance to the business universe in which it competes for capital, human resources, and market opportunities. Short-term goals relate performance in the current industry setting to primary competitors. In defining long-term goals, managers are free-and indeed have the responsibility-to ignore the current environment and to set goals that meet or exceed the best performance in the country for companies in their risk class. Company B, referred to in Exhibit II, wanted to grow faster than GNP, thus outperforming the average industrial company in growth rate. Other companies have done the same by trying to match the top quartile of the Fortune "500" or double in size every five years (an obviously above-average performance).

Such goals transcend existing competitive conditions. To mix the two planning horizons in one planning document, as Company B did, is to create confusion among management rank and file. Because Company B's long-term goal related to aggregate corporate performance, it was either a vague gleam in the CEO's eye or an indirect way to alert management to an impending change in the locus of product market operations. Unless the company makes the goal more precise by specifying plans and a timetable for strategic redirection, the goal will have little impact on the organization's behavior. The long-term goal may be a cause for concern by those responsible for current performance, but the immediacy of short-term goals will drive the long-term goals out every time.

A significant conflict of goals often occurs when companies quantify their ROI targets. In the broad sense, every company should try to find the highest sustainable ROI while maintaining a strong position in the market and a top-quality management team. Expressed in operational terms, that means equaling or exceeding company or industry performance.

But management usually chooses an ROI target that is: (1) purely arbitrary, chosen because it exceeds the company's past performance and tests the corporate "reach"; (2) more specific to fit the self-sustaining growth equation, fund anticipated growth, and free the organization from excessive dependence on public capital markets; or (3) based on a capital market measure of the company's cost of capital, debt, and equity, and adjusted for its risk class or "beta."

The last two ROI goals underline the contrast between short- and long-term goals and point up the confusion that can surface in the corporate financial goals system when management doesn't clearly identify the time horizon for achievement. A company bases the ROI required for self-sustaining growth on the dictates of the current business environment and competitive strategy. Management can properly describe it as a short-term goal related to existing strategy and the need for a balanced flow of funds.

On the other hand, the corporate cost of capital tests individual against aggregate corporate performance. As judged by the capital markets in which the company competes for funds, the measure tests the need for-or the wisdom of-strategic redirection of resources, addresses long-term issues, and is properly described as a long-term goal. Many companies commonly and, I believe, mistakenly use this measure in the capital-budgeting process as a short-term target or hurdle rate in the evaluation of ongoing investment projects. In such implementation of existing strategy, a self-sustaining ROI target or other short-term standard would be more appropriate. The market cost of capital implies a realistic and feasible strategic alternative that frequently doesn't exist. Only when the company is actively considering a strategic redirection of investment-and most do only infrequently-is the market rate for the cost of capital, debt, and equity the appropriate standard.

My hope is that managers will recognize the complexity inherent in any well-designed financial goals system and the care needed in selecting and applying individual goals. Unless managers make certain that all primary goals are consistent with each other, their company's economic and competitive environment, and its operative business strategy, the goals will not serve as an effective discipline.

A version of this article appeared in the May 1985 issue of Harvard Business Review.

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Financial Goals and Strategic Consequences

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One of the primary responsibilities of the CEO of any major corporation is to articulate the company's financial goals as a tangible focus for its business mission and strategy. In theory, these goals are imposed by shareholders through stock market responses to company performance. In practice, they are deeply rooted in the CEO's values and [...]

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There are four general outcomes of receiving business development assistance. The first outcome is the promotion of the project on acceleration for further refinement and passing the stage of working with hypotheses. Companies need to understand what points they are not fully implementing, what issues they have not considered, whether their judgment is true or false. The second outcome is the receipt of a grant for the project during the evaluation period, that is, the company must show where and how it will spend the money, and the evaluation of this outcome will be an increase or decrease in indicators in one direction or another. The third outcome of venture capital investment is getting the first round, which is not fixed.
Consider the concept of the first round and what it is connected with. The first round is called the first stage of investment. If the company has received positive assessments of the criteria considered by investors, then it is given the opportunity to receive financial investments from a venture fund. These investments are chipped off from the estimated cost of the project. That is, if a venture fund has valued a company at 50 million rubles and is ready to purchase 10 percent of the project, then the organization receives 5 million rubles.
It is necessary to consider the goals of obtaining venture capital investments and the investment process itself.
Organizations receiving investments are usually focused on scaling or launching. Most often, the company uses the received funds to acquire current assets, since from the general logic it is not worth borrowing for something that will not bring you profit in the future, as this is a contradiction in the sound use of funds.
If we consider venture funds that provide financial resources, then their goals are much more complicated. The first option is the management of a promising project with a view to its further promotion. If a venture capital fund has invested a large amount of funds in a project as a percentage of the total value of the company, then it has the right to put its CEO to manage the organization. The second version of the goal is simply to receive a percentage of the company's profits. In this case, investors are considering projects that can most quickly recoup investments in themselves, that is, the return on investment has the shortest time interval. In this outcome, the fund uses methods for assessing future profits and specialized coefficients that will give an understanding of the current situation for the company. The third purpose of investment is the resale of the company in the future. The Fund considers projects with a high potential to increase financial performance in order to resell its share in the organization to another player in the future and profit from this process.

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Based on the above information, we can conclude that investing is a multifaceted concept. Various instruments are used depending on the type of investment. In venture capital investment, which was described in the work, there are different goals for different parties, as well as difficulties. There are many criteria for evaluating projects that sometimes cannot be predicted, as they are subjective and not entirely logical due to the use of value judgments.
The next step of the work is to conduct a statistical analysis of startup estimates and general conclusions.

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The materials of my research are the work of strategic investors in the field of venture capital investment, as well as project evaluation.
The result will be the creation of a common scale for evaluating startups.