In this provocative and insightful white paper, Professor Malcolm McDonald makes the case that most financial reporting is inadequate — and even dangerous when it comes to assessing a company’s true commercial health. While finance teams celebrate rising sales and returns, the market may be slipping away unnoticed.
Through the story of a real (but anonymised) company, InterTech, Malcolm illustrates how five years of “excellent” financial results concealed a collapse in customer retention, product quality, market share, and brand strength — all of which nearly led to the company’s demise when growth slowed.
Key Points Made
- Financials alone are not enough: They reveal very little about market health or future risk
- Market-based metrics are essential: Retention, share, dissatisfaction, quality, service perception
- Balance sheets hide real value: Tangible assets are rarely the source of company worth
- True value lies in customers, brand, relationships and innovation capability
Case Example: InterTech
- Financial growth: doubled sales and profits over five years
- Market reality: declining share, falling product/service quality, and 20% customer churn
- Segment analysis showed best customers were defecting fastest
- Outcome: The business nearly collapsed when the market matured
Other Key Insights
- Goodwill and balance sheet adjustments often mask serious misvaluations
- Example: Procter & Gamble paid £31bn for Gillette — only £4bn was in tangible assets
- Intangible value (brand, relationships, IP) accounts for 64–73% of corporate value in advanced economies
Quote
“Let’s remind organisations that their real value resides in their relationship with their markets and their customers — not in their tangible assets.” – Professor Malcolm McDonald
Download the Full White Paper
This summary captures the argument — the full PDF includes tables, segment-level analysis, and examples of how financial statements can mislead even experienced leadership teams.