Reflect Inc.

Feeling good is all a state of mind. There is a great poem that I was exposed to when I was in high school called the Optimist's Creed. Essentially, the poem suggests that one's attitude is what makes your life. I think there is a great deal of truth to this idea. If you feel good, then you it shines through your work, your interactions, everything that you do.

Recognizing this, I was introduced to a phenomenal online shirt company called Reflect Inc. The concept of the website is brilliant and practically mirrors the invocation to this post that I just gave.

Reflect Inc. provides transformational clothing. What is transformational clothing? Well, the shirts that they create contain simple affirmations on the chest written in a cursive-like script and on a black shirt. However, if they merely just had some sort of affirmation on the chest of the shirt, I probably wouldn't take the time to write about it as I am. What Reflect Inc. does differently that truly separates them from other shirts I've seen is the unique way in which they convey their message.

The affirmation that is written across the chest on the shirt is written in such a way that it is read normally only by looking into a mirror. This type of script is referred to as mirror writing and it was employed by people like Leonardo Da Vinci.

This isn't to suggest that the only good purpose of the shirt is to wear it in front of a mirror. Hardly. The way that the writing looks across the chest is pretty eye catching and makes one hell of a conversation piece. However, it also happens to double as a wonderful affirmation that can get you in the right mindset to take on the world.

There are a variety of affirmations that the company provides on a number of different topics. There are affirmations relating to one's Life, Relationships, Health, Self Confidence, etc.

They are currently running a promotion where they are shipping items for free.

Great concept. Unique idea. Implemented and ready to soar.

An Olympic Return

The Olympics are an incredible event that is hosted once every four years and it brings together nations from all over the World in friendly competition to measure human achievement. These Olympics in Beijing, China have seen some of the most impressive feats capable by all of mankind. Take for instance, Usain Bolt, who ran the 100 meter dash in 9.69 seconds blowing away the rest of the field and establishing a new World Record. How can you talk about the Olympics without mentioning Michael Phelps and his 8 gold medals in swimming? How about the impressive performances by US gymnasts Nastia Luikin and Shawn Johnson in the women's all-around competition.

After just 11 days of competition, I've been truly impressed by the Olympics and think that this one in particular will have significant long-term impact on the World and I feel like it is already changing it in just a short time.

Anyway, aside from the remarkable performances by the athletes and the most amazing opening ceremony probably in the history of the Olympics and perhaps the history of mankind, I wanted to delve into the financial impact that the Olympics has on the World. A huge reason why the Olympics have become the show that it has is due to large investments for big multi-national corporations around the World.

Take for instance the Olympic logo. In order to become an "official sponsor" of the Olympic games and therefore be able to market your company as such, it will cost approximately $50 Million. If companies don't want to spend this enormous amount of money over a 17 day span, they can also become a "partner" of the games in which they can display the logo of the Olympics in their marketing campaigns, but they will need to also put the "USA" or any other country along with it. This typically will cost companies around $25 Million.

As you can see there is a significant investment that companies who decide to involve themselves in the Olympic games undertake. However, it really wouldn't make much sense for these companies to spend exorbitant amounts of money if there weren't any payoff involved.

Intuitively, it makes good sense to sponsor an event like the Olympic games. For example, sponsors get an enormous amount of global reach in their advertising campaigns during the course of the games. This is true of television commercials, internet advertising, as well as, advertising at the Games themselves. This gives companies a great deal of exposure to a World market.

Additionally, the advertising campaign makes sense if you believe that advertising actually works. What I mean by this is that the Olympic games are a fun event that people have positive connotations connected with it. By linking those positive connotations of the Olympic games with the corporation that decides to sponsor the games, people become more likely then to associate positive images with a particular corporation. Ultimately, this is intended to drive revenues and eventually increase profits.

Increasing profits is the name of the game and Olympic sponsorships are a huge investment and it would thus only make good sense for companies to back this event if it ends up benefiting the company.

Therefore, I did an analysis of the 2004 Summer Olympics held in Athens, Greece and looked at 9 companies in particular that sponsored the games. Each company were primary "official sponsors" in varying categories. I looked at various financial indicators since 2004 through 2008 including their revenues, EBITDA, stock price, current ratio, and leverage ratio. I wanted to evaluate whether an Olympic sponsorship effort had any significant return or increase in growth over subsequent years.

In order to do so, I compared my 9 companies that sponsored the 2004 Summer Olympic games in Athens, Greece with 48 of the top 50 Fortune 500 companies in 2008. I consider these companies to be a sufficient benchmark on which to gauge economic progress.

• Methods

The first thing I decided was which Summer Olympics to look at in particular. I chose the 2004 Athens, Greece games, because I think that the sizable investment that companies have to make in sponsoring the games ought to have quick returns, defined as those that significantly impact financial data of a company within 4 years.

Next, I found the companies that sponsored the Summer Olympics in Athens, Greece. I found a website called, INVGR.com (Invest in Greece), which itemizes the companies that sponsored the Olympic games in Athens. According to the website, the sponsors invested over $600 million in the games.

Based on this list, I then picked companies that were publicly traded and had readily available financial data. This ended with our current list of 9 companies and their category which include:

1. Hellenic Telecom (Telecommunications)
2. Heineken (Brewery)
   
3. Coca-Cola (Non-alcoholic beverages)
4. Kodak (Film/photography and imaging)
   
5. McDonalds (Retail Food Services)
   
6. Samsung (Wireless Communications)
7. Time Warner (Periodicals/Newspapers/Magazines)
   
8. Xerox (Document Publishing, Processing, Supplies)
   
9. Shell (Petroleum Products)

After determining these companies, I then looked up their financial data since 2004. All financial data is courtesy of Google Finance and all stock quote information is courtesy of Yahoo! Finance. Samsung's financial data was taken directly from their Annual Reports for 2004 through 2007.

The financial data includes measures for the current ratio of each company and leverage ratio for each company. The current ratio is found by dividing the current assets by the current liabilities and is a measure of a company's ability to pay its short term liabilities and its capacity to turn products to cash. The leverage ratio is a measure of the financial leverage of a company and gauges its ability to meet financial obligations. This ratio is found by dividing total assets by equity.

After performing the initial analysis of Olympic Sponsor companies, I then needed to benchmark my results against an average. I decided to use the top companies in the Fortune 500 List as my benchmark because of its inherent diversity of companies. In addition, the companies on the Fortune 500 list typically perform well and if I wanted to see if companies perform unusually well this would be a good group to compare it against.

I took the top 50 companies of the Fortune 500 List in 2008 and compared their revenues and stock prices since 2004. My sample included only 48 of the top 50 companies due to mergers and acqusitions that had occurred since 2004. I decided to leave these two companies out, because the merge may have inflated or slowed growth.

• Results

• Compound Annual Growth Rate (CAGR) Revenue

Since 2004, the 9 companies that sponsored the 2004 Athens Summer Olympic games had an average CAGR of 5.4%. The company with the highest CAGR was Samsung. Their CAGR was 17.7% and went from revenues of $55.2 billion in 2004 to $106.0 billion in 2007. The company with the lowest CAGR was Kodak. Their CAGR was -6.6% and went from revenues of $13.5 billion to $10.3 billion.

Compared to our benchmark of the top 48 of 50 companies in the Fortune 500, these results are dissapointing. The Fortune 500 companies had an average CAGR of 11.0% since 2004. The company that had the highest Revenue CAGR since 2004 was The Goldman Sachs Group, 30.1% and went from revenues of $23.6 billion to $88.0 billion. The company with the lowest Revenue CAGR since 2004 was General Motors, -1.4% and went from revenues of $195.6 billion to $182.3 billion.

Additionally, if we evaluate each sample's standard deviation we can determine a range in which we would most likely find 68% of the companies in each sample by looking at +/-1 standard deviation.

The Olympic sample had a standard deviation of 6.3%, which determines a range for Revenue CAGR for companies sponsoring the Olympic games as between -1.0% and 11.6%. The Fortune 500 sample had a standard deviation of 7.5%, which determines a range for their sample of 3.5% to 18.5%.

• CAGR Stock Price

Since 2004, the 9 companies that sponsored the 2004 Summer Olympic Games in Athens had an average CAGR for their Stock Price of 7.5%. The best performing stock was McDonald's which had a CAGR of 17.9% and the worst performing stock was Kodak who had a CAGR of -5.4% for their Stock Price.

The top 48 of 50 Fortune 500 companies had an average CAGR for their Stock Price of 7.1%. The best performing stock was Valero Energy which had a CAGR of 35.6% and the worst performing stock was The Ford Motor Company who had a CAGR of -12.9%.

To determine a range in which we would most likely find 68% of our sampled companies we take a look at standard deviations. The standard deviation for the sponsoring companies was 8.2%, which defines a range of -0.7% to 15.7% CAGR for stock price. The standard deviation for the Fortune 500 companies was 10.1%, which defines a range of -3.0% to 17.2%.

For further comparison, we can look towards three widely used indeces in the United States Stock Exchange, the Dow Jones Industrial Average (.DJI), NASDAQ (.IXIC), and S&P 500 (.INX). Since 2004, the Dow Jones Industrial Average has had a CAGR of 3.8%, the NASDAQ has had a CAGR of 3.0%, and the S&P 500 has had a CAGR of 4.0%.

• CAGR EBITDA

CAGR for EBITDA was only evaluated for the sponsoring companies. On average, the group's EBITDA had a CAGR of 2.9%. The highest performing company in terms of EBITDA was Time Warner, who achieved a 12.0% CAGR for EBITDA. Time Warner went from an EBITDA of $6.1 billion in 2004 to $9.6 billion in 2007. The worst performing company in terms of EBITDA was Kodak at -22.0%. Kodak went from an EBITDA of -106 million to -235 million.

• Revenue Percentage Growth and Year over Year

The 9 sponsoring companies of the 2004 Summer Olympic Games grew on average by 7.5% from 2004 to 2005, 5.7% from 2005 to 2006, and 8.7% from 2006 to 2007. Between 2004 and 2006, Samsung grew the most each year. In 2006 to 2007, Coca-Cola had the highest percentage growth in revenues. Kodak was consistently the company that performed the worst from 2004 to 2007. Aside for a -0.1% growth by Xerox between 2004 and 2005, Kodak was the only company that had negative growth over this period.

By keeping the 2004 revenue of each company constant, it can give an idea as to how much the company grew over the four year period. On average for the group, revenues increased by 7.5% in the first year, by 14.4% by the second year, and by 25.2% by the third year.

• Current and Leverage Ratios

In order to evaluate current and leverage ratios it is best to take a look at them as they deviate over the four sampled years. Overall, the average for the group's current ratio deviated by 0.146. The largest deviation in Current ratio was 0.491 by McDonalds. The smallest deviation was by Shell which was 0.079. The average current ratio for the 9 sampled sponsor companies over the four year period was 1.20.


The average deviation for leverage ratios was 0.515. The largest deviation was by Kodak, 2.912, and the smallest deviation was by McDonalds, 0.046. The average leverage ratio for the 9 sampled sponsor companies over the four year period was 2.83.

• Conclusion

Companies will pay a tremendous amount of money in order to sponsor the Olympic games. Marketing campaigns and rights to the Olympic rings can cost in excess of $50 million. With such a large investment, it would seem strange for companies to not profit from it.

Based on the financial research of 9 sampled companies that sponsored the 2004 Summer Olympic games held in Athens, Greece, there is no significant benefit to sponsoring the Olympic games.

In terms of revenues, it appears as though those companies that sponsored the Olympic games actually lagged behind. Olympic sponsors had a CAGR of 5.3% since 2004, whereas the benchmark for this research (48 of the top 50 Fortune 500 companies) had a CAGR of 11.0%. This would suggest that the investment in the Olympics is unfounded.

However, when comparing stock price CAGR, Olympic sponsors outperform the benchmark slightly, 7.5% versus 7.1%. This, however, is very close and shouldn't be seen as a significant difference. EBITDA gains for sponsoring companies, 2.9% CAGR, further indicates the lack of impact that the Olympics has on the profitability of a company.

Current and Leverage ratios practically stay in line and there is no significant jump in these financial categories.

However, it is interesting to note that companies that invest in the Olympics typically have a strong stock return. As of January 1, 2008 the 9 sampled companies were up 50.8% on average, with the highest returners, McDonalds and Hellenic Telecom, up 127.5% and 117.4% respectively. It is also important to point out how companies who sponsor the Olympics have strong revenue growth. Although our sampled group didn't outpace our benchmark, the revenue growth after four years (without Kodak) is on average 31.3% with the highest growth coming from Samsung, 91.9%, Coca-Cola, 32.7%, and Shell, 33.6%. These are extremely strong numbers and 6 out of 9 companies had in excess of 20% revenue growth.

It's important to remember the larger picture and purpose of the Olympics in general. It's a momentous occasion that brings together the finest athletes in the World to compete together and promote good-will. Companies have the opportunity to benefit from the immense audience that is drawn to the Olympics, but there is certainly no proven formula.

Corporate Knowledge

I'm continually fascinated by companies. I think that if you look close enough, you will find that they can be as unique and interesting as people. All of them have personalities of their own, however, that personality is constructed by the collective unit of people that work to move that company forward.

Companies have identities. A large portion of this identity is presented via the media, especially advertising and the news. So, in a sense, corporations are similar to celebrities. You see them on the news now and then. Once in a while they do something stupid that gets them in trouble. You typically don't get the opportunity to actually meet the CEO of the company or visit its headquarters.

So, if you enjoying keeping up with the life and times of Brad Pitt, Paris Hilton, George Clooney, or perhaps even Eva Longoria, realize that my passion when it comes to following companies is in the same context. I find the story that they tell and the impact that they have on the world equal to that of prominent movie actors and actresses in Hollywood.

In an attempt to learn more about companies and how people perceive some of the most notable companies, I recently ran a survey on Those Answers Inc. website.

The goal of my survey was to compare how corporations from a wide spectrum of activities in the United States economy were perceived. I looked at four separate criteria, each composed of two diametrically opposed descriptors, that I eventually plotted against one another in order to see if there was any correlation. The four criteria were:

1. Success and Failure
2. Knowledge and Ignorance
3. Innovating and Stagnating
4. Good and Evil

By creating a x-y scatter plot or histogram comparing the scores that each company received for the four different criteria, I was able to make an assessment of whether or not there was a legitimate correlation between various combinations. In this study I looked at the correlation between, Success and Knowledge, Success and Innovation, Success and Ethics, and Knowledge and Innovation. I will address all of these different scenarios shortly.

• Survey

I sent the survey out via Facebook to a number of my friends. The survey began with a brief description of the definition of a corporation, "a legal entity that is used primarily to conduct business." This is a very generic and broad definition. I then explained my choice for using the companies I did. I picked the 10 companies in this survey for notoriety sake, they are all within the Fortune 100 and are generally well known, as well as for their diversity in corporate activities. I didn't want the bias of conflicting businesses to alter my survey results.

There were 10 companies used in this survey. They were:

1. Boeing
2. Comcast
3. CVS/Caremark
   
4. FedEx
   
5. General Motors
6. Goldman Sachs
7. Home Depot
   
8. Microsoft
   
9. PepsiCo
   
10. Walmart

My instructions for the survey were to order the list of 10 companies used in the survey between the two diametrically opposed descriptors (i.e. Success and Failure) as though they were placed on a continuum. Therefore, the "most" successful company in the responders opinion would be closest the Success side of the input area, and as the companies moved further away from this side and closer to the failure side would thus be considered the "biggest" failures.

Companies would receive a score of 5 points for being the "most" Successful, Knowledgeable, Innovating, or Good, gradually moving to -5 points for being the "biggest" Failure, Ignorance, Stagnating, or Evil. Between these two extremes, companies would score points between 1 and 4 points if closer to the Successful, Knowledgeable, Innovating, or Good side, and -1 and -4 points if closer to the Failure, Ignorance, Stagnating, or Evil side. The continuum did not include the score of 0.

Based on the respondents ranking of the companies points were assigned for each criteria. The points were then averaged. Finally, the points were then plotted against one another for the varying criteria to see if there was a correlation between the two.

A correlation was determined by adding a trend line to the data that expressed and assisted in performing regression analysis. According to the Kellogg School of Management, "Regression analysis is a statistical technique for studying linear relationships." This type of analysis is beneficial, because it provides a goodness of fit for selected data points and compares two seemingly unrelated criteria that may indeed correlate to one another.

A further step is required. In order to determine the, "proportion of variability in a data set that is accounted for by a statistical model," a coefficient of determination needs to be assessed (Wikipedia). According to Duke University, a good value for the coefficient of determination is generally equal to or greater than 50%, but in most cases it just depends. We will make note of the coefficient of determination when presenting the results.

• Results

I was, at first, primarily concerned with the relationships of the three criteria plotted against the Success-Failure criteria, but I ultimately ended up comparing all the various relationships to find the strongest correlation. My original hypotheses were that Companies scoring highest in:

• Knowledge have a high correlation to Success
• Innovating have a high correlation to Success
• Good have a high correlation to Success

Now, I think we can take a look at the results and I'll try and explain what they are and possible reasons for why they turned out as they did.

• Knowledge - Success

Based on the findings in this survey, the coefficient of determination representing the correlation between a company's knowledge and the perception of a company's success is 0.603. This is a positive indication of a link between these two criteria if we draw on the assessment of Duke University.

As you can see in the graph, there are many companies within the first quadrant (Microsoft, Boeing, Walmart) that are all considered both successful and knowledgeable. Then there are several companies within the third quadrant (Comcast, General Motors, Home Depot) that are all considered failures and ignorant (or less successful and less knowledgeable than their counterparts in quadrant I).

You may also notice a lack of companies in Quadrant II and IV. Companies falling within this range would represent highly knowledgeable companies that are failures and ignorant companies that are successes.

Intuitively, the results make sense and the coefficient of regression further warrants this. Companies that are considered "knowledgeable" ought to be "successful." If we draw on my analogy from the beginning of this post (companies are like people), one would also believe that a knowledgeable person would become successful. Companies that are not as knowledgeable are therefore not as successful. The lack of companies within the II and IV quadrant also further prove this correlation.

• Innovating - Success

The coefficient of determination that represents the relationship between Innovation and Success is seen to be 0.2377. This is a lot lower than the first correlation that we looked at, Knowledge and Success. This is a relatively weak indication of correlation.

The reason that Innovation and Success may not be as strongly correlated is due to the fact that there is no direct link between Innovation and Success. Companies can be unbelievably innovative, developing new ideas everyday, but those ideas may not convert into revenue and ultimately profit.

In this scenario, there are companies that are seen as highly successful, Walmart and PepsiCo, but are stagnating at the same time. This is very accurate, especially when you look at the case of Walmart. While I would contend that Walmart's processes and supply chain integration are some of the most innovative in the world, as far as their product is concerned (consumer goods) they are relatively the same. This doesn't mean for one instant, however, that they are losing any bit of revenue or being any less of a successful company.

• Ethics - Success

The coefficient of determination representing the relationship between corporate Ethics and Success was a disappointing 0.0811. This is a very weak correlation.

By looking at the chart, you can see that the companies are generally spread out showing no real signs of following any sort of linear relationship. This ultimately leads to a weak coefficient of determination.

You may also notice that even though the coefficient of determination is weak, the linear trend actually has a negative slope, indicating that the more successful a company is perceived to be the more evil it becomes. When one stands back and thinks about this correlation, it tends to make sense logically.

Consider highly successful companies; Walmart (#1 Fortune 500 List), Nike (Top Shoe Sales in the World), and Coke (#1 Soft Drink in the World). While all of these companies are considered extremely successful, they are also often questioned for their ethics and morality when it comes to how they treat their workers, smaller distributors, etc. Therefore, even though the trend isn't strong it makes sense.

• Innovation - Knowledge

The coefficient of determination representing the relationship between a company's Innovation and Knowledge was the strongest, 0.6436. This is our highest correlation and well within the bounds proposed by Duke University.

Similar to our scenario of Knowledge - Success, companies are generally found within the First and Third Quadrant, indicating a link between innovation and knowledge and stagnation and ignorance.

Similar to our other scenarios, just by thinking about these two criteria logically it clearly makes sense that there would be a strong correlation between them. Companies that have a lot of knowledge probably have the ability to innovate well. At least, one's perception of corporate knowledge must lead to a belief in that company's ability to innovate.

The reverse is also true. Companies that innovate are probably thought to be very knowledgeable about their particular field, because they can continually adapt and work out new possibilities with it.

• Conclusion

The object of this survey was to determine the relationship of various diametrically opposed criteria that included: Success and Failure, Knowledge and Ignorance, Innovation and Stagnation, and Good and Evil. Respondents were asked to rank the 10 companies in this survey on a continuum in which they were later assigned a point value. These point values were then averaged and then plotted against one another.

Regression analysis was performed in order to evaluate coefficients of determination. The coefficient of determination indicated a value between 0 and 1, 0 being least determinant and 1 being most determinant.

Based on the findings of this survey, the correlation between Knowledge and Innovation was highest, 0.6436. This was then followed by Knowledge and Success, 0.603. These two figures meet our Duke University criteria of being greater than or equal to 50% and can be considered legitimate correlations.

Our two other studies, Ethics and Success, 0.0811, and Innovation and Success, 0.2377, fall short of the generally accepted standard, and therefore, I cannot deduce any sort of correlation between these two criteria aside from logic.

Overall, I thought this was a really interesting and enjoyable study to perform. I was surprised at how well the results actually turned out. I feel like I learned a lot about companies and some ways in which they relate.