The Equilibrium Existence – IIM Trichy Edition
Everything in life has to have balance – Donna Karan
The word “Equilibrium”, with its roots in the Latin language, means equal balance and was always used to describe various scientific phenomena. But lately, this has slowly moved into the literature of managerial science. The field of economics describes Equilibrium as a position of rest characterized by the absence of change. It is a state where there is a complete agreement on the economic plans of the various market participants so that no one has a tendency to revise or alter this decision. I have always felt that in order to be successful, a person needs to find this equilibrium.
At IIM Trichy, during a course on valuation, we were taught about the “Valuation Triangle” by Aswath Damodaran. The triangle introduces Risk, Reinvestment and Growth as the three key factors responsible for generating value and important while defining the valuation model for a company. The model talks about how these three components should be balanced for a company to grow and thus to generate value. The following class discussion revealed that a growth company will need frequent reinvestment if it wishes to increase its revenue at the current rate. Similarly, it might also need to acquire additional debt thus increasing its risk, to maintain the growth rate. The model also cites that a condition of dis-equilibrium in these three parameters will lead to a reduction in value.
In order to explain the concept, the professor highlighted the similarity between the value of a company and success for an individual. One can easily use this Triangle principle to achieve success in life. The success in personal life is equivalent to the value in the valuation triangle. This success is dependent on knowledge, skills and attitude. The growth in the valuation triangle is equivalent to attitude, risk is equivalent to skills and reinvestment is equivalent to knowledge. In order to move up the success ladder, a person has to maintain a balance between his skills and knowledge and these two should be aligned with the attitude. An equilibrium between these three factors is essential for success in life.
These key concepts, that I learnt during this valuation class not only helped me understand the structural factors of a valuation model but also improved my understanding of success. This equilibrium principle is immensely valuable and can be used to explain a lot of theories in management science.
Which ABG Company would you want to work for and why?
I am interested in working with Aditya Birla Capital Limited. I have done B. Tech. from Maharaja Surajmal Institute of Technology, New Delhi and I have worked with Nirvana Financial Solutions India Pvt. Ltd. as a Software Engineer. I was working on the portfolio management and reporting services solution for Nirvana’s client which majorly included fund managers and asset managers. I am a CFA candidate and wish to major in finance and analytics. I believe that my professional experiences and the knowledge I have acquired at IIM Trichy will be a good match for this position and will ultimately prove beneficial to Aditya Birla Capital Limited.
This article is written by Ishan Gandhi – Class of 2019