Investors Have a New Tool to Predict Future Profitability

One of the most crucial factors in a company’s success is the financial behavior makeup of the CEO and rest of the executive team. Find out which traits have the greatest influence on profitability!

All investors share the goal of achieving strong returns by investing in well-run companies. But deciding which businesses offer the most potential in that regard can be tricky. Thankfully, there’s a wealth of behavioral data that can be uncovered and used to bolster your investment strategy and due diligence process!

"The ultimate results are about the decisions people make, and people's financial behavior influences decisions."
Pegasus Ratings Report, August 2024

The Scope of Our Behavioral Analysis

We recently developed an AI-driven process that predicts a person’s behavioral style based on their digital footprint. Our Digital Scan provides instant data, without the need to administer any kind of questionnaire or psychometric assessment.

We used this cutting-edge technology to conduct a comprehensive analysis of nearly 5,000 key executives from S&P 500 firms to better understand how successful companies are run. The results confirmed the incredible value this information could provide to business leaders and investors alike. The Pegasus Ratings Report is a compilation of this DNA Behavior-powered research that can be used to:

• Correlate executive team behavior with firm profitability
• Provide a proven behavioral model for leadership teams
• Give investors the behavioral insights needed to enhance their investment strategies
  

Behavioral Traits Tied to Profitability

Based on our experience, we had a good idea of which behaviors might influence firm profitability. The research not only supports our original hypothesis, but it creates a science-based blueprint for financial value creation.

We now have a better idea of how top teams are balanced, and which behavioral strengths have the most potential to increase profits. In the chart below, you can see that the stronger a certain trait is, the greater the likelihood that it will have a positive impact on the bottom line. For example, you can see that for each 4% increase in the Financial Goal Drive of the S&P 500 leadership team, there was a 21.51% increase in profits!

Of course, the overall financial profitability of a business will be higher if the CEO and key executives have a strong combination of all six financial behavior competencies. That potential is further enhanced if they have an awareness of each other’s financial behavior styles and can effectively work as a team to utilize each other's strengths and manage their struggles.

Critical Core Competencies

Even though all six core competencies are part of a healthy mix, three of them are of special importance to investors. In the graph below (Figure 9 from our Pegasus Ratings Report), you can see how Innovation Focus, Fiscal Control, and Financial Goal Drive are directly linked to a company’s financial value creation potential…and that certain people exude these natural strengths. As such, when there are Initiators, Strategists, and Reflective Thinkers at the top of the organization, the odds of long-term financial success are likely to go up.

That is not to say that leaders with other behavioral styles can’t achieve phenomenal results, but they would have to lean on learned skills rather than natural strengths to do so. We look at hard-wired financial behaviors in our analysis so we can make the most reliable predictions.

Learn More About DNA Unique Styles

Implications for Investors

Now that there is a simple way to guide investment decisions based on inherent financial behaviors, investors can easily incorporate this new information into their overall strategy. This will better equip them to make both personal and client investment decisions with insight into the hidden aspects of how each executive team is balanced.

Five Possible Trajectories Based on the Behavioral Makeup of the Executive Team:

1. Exponential – High on all three competencies.
   These companies know how to drive value-adding innovation to the market regularly with much higher gross margin products and maintain a low financial resource utilization on a relative scale to sustain viability and Growth.
2. High Growth – High Goal Drive and Med/High Innovation Focus but Low Fiscal Control
   These companies know how to be disruptive and design new products with high margins. However, high investments and lavish operational spending (for instance, in sales and core operations) can lead to more volatile results.
3. Consolidation - Middle on all three competencies
   These companies have a balanced approach to business growth and will make some investments grow, but they may not fully know how to innovate high gross margin products or control spending.
4. Stagnation - Low Innovation Focus, Med/High Fiscal Control, Low/Med Financial Goal Drive
   These companies will tend not to grow because they cannot adapt their business to changing market needs with new products that make a difference. Further, they do not have enough Drive to make financial structure changes given their existing products are currently doing well enough, and they have a short-term focus on current profits which can choke Growth.
5. Depletion – Low on all three competencies
   These companies will more likely go backward compared to their peers because they do not know how to innovate their business models and products. Further, they do not know how to control their resource utilization.

The Latest in BeSci Tech

Our platform is uniquely designed to uncover the financial aspects of a person’s behavior, and our new Digital Scan technology provides that data instantly. It has quickly become a sought-after tool for making investment decisions!

The Pegasus Ratings Report provides a demonstration of the system’s capabilities and an in-depth analysis of the financial behaviors of the world’s top execs. We believe that this research will help guide investors to make informed financial decisions for themselves and their clients.

Want to know who made it to the top of the list? You can access the full analysis, including our ranking of S&P 500 teams!