Live in a world of profitability

Inamori mentioned corporate profitability.

Inamori reiterated how important profitability is for us to manage companies. The following are tips by which we can change our world.

Let me explain one by one

1 Keep no-debt finance structure

At Kyocera’s starting up stage, Inamori desired to pay back the equity capital which his mentor provided Inamori by putting his own real estate properties into collateral. However, even though he generated 10 percent profit, after deducting tax and separating the reserve for future investment, only a small amount remained. He was very much disappointed however, soon he realized that he should generate more profit. If ten percent looks insufficient, he should generate 20 percent. By doing this, he would be able to pay back the equity to investors as early as possible.

He said, “I never thought whether or not twenty percent is possible. Rather, I just desired to generate twenty percent of profit. “ This is the mechanism of the subliminal mindset. He had already known that desiring under his subliminal would be the shortcut to realize his desire.

2 Get ready for paying the proper tax

At the early stage of Kyocera startup, when the company made a profit, after deducting the tax, a quite small amount of earnings was retained. Inamori was not happy with that. The state had never supported him but they were trying to squeeze them as a dictator. However, he had never thought of saving the tax. Rather, he started thinking of increasing profitability. His mindset initially drove Kyocera’s corporate culture, and allowed Kyocera to maintain its highly profitable financial status.

I have had a lot of international experiences. I feel I am very lucky as I was born in Japan and raised under Japanese culture. Every time I communicate with non-Japanese, I feel that Japanese are considered as trustworthy, smart, honest and diligent. Most people look at Japanese with respect. This is due to our ancestors’ efforts to build up trust. I, as a Japanese living in this 21^st century, have been enjoying a sort of Japan credit. Therefore, I naturally think that paying tax is a necessary cost for using Japan credit. Regardless of actual use of the tax, no matter how uncertain the tax system involves, I want to keep paying the proper tax to Japan.

3 Aim both the stability and the growth

Inamori said, “while maintaining no-debt structure, your company keeps growing, this sounds like a miracle. This looks almost impossible. However, as long as your company records a high profit ratio, you would be able to realize both. High profit allows you to reserve for new investment, arrange debt finance in a favorable condition, this improves your financial status, and you would be able to pay debts back in a shorter time than you expect. So in a nutshell, a high profit structure definitely strengthens your financial condition.”

Now under the COVID pandemic, many restaurant businesses have given up keeping their restaurants. However, if they had a sufficient reserve, they would be able to obtain the best location at quite reasonable price with tenant favorable conditions. This would reflect future cash flow of their business. This is what Inamori wanted to stress.

4 Manage future uncertainty

Inamori said, assuming the profit ratio of 15 percent and 3 percent increase of annual labor cost, this company can survive at least next five years against the labor cost increase.

→ When it comes to the office market in real estate, now most companies have been saving the commuting cost and could consider downsizing their office spaces. However, in the near future, companies must compensate for the residential rent, internet fees and spend additional unexpected costs that come from remote working systems. In order for them to get prepared for such unexpected costs, they should maintain a high-profitable financial condition.

5 Desire your business diversification

Kyocera had diversified their businesses not only in the fine ceramics but also cutting tools, artificial jewelry, artificial tooth, and solar battery. Inamori admitted that all of them went successful even though they took a long time. He also said that we had been able to commit ourselves to make each of them successful, simply because Kyocera maintained high-profitable operations in our core areas.

→ Such track records have originally come from strong desire of the top management. While the core business has been performing well, we must make a new business happen and grow.

6 Securing the low-risk investment

When Kyocera went into telecommunication business, it had retained earnings of 150billion JPY. Inamori asked the board to use two thirds of that, 100 bil JPY. If this had ended up with loss, Kyocra would have recorded a loss around 80 bil, however after that year, Kyocera would have recorded profit of 20% again. Therefore, this was totally a safe and secured investment. Media and financial analysists criticized Inamori’s strategy around that time however, he thought he was “wrestling in the center of the ring”. It went successful and now Kyocera is the principal shareholder of KDDI, the stock value has risen to 680 billion and annual dividend is 13 bil JPY.

→ Under the COVID, many companies have been relieved that they get the dividend and income from the real estate. High profitable financial structure allows us to develop such a low risk cash flow stream to the company.

7 Consider work, money, price and the value

So, what is the proper profit ratio? How much profit ratio can be justified? As a manufacturing company, Inamori had been thinking about this theme. Around eighties and even early nineties, financial institutions had got almost 6-8 percent as the return of their debt investment. On the other hand, the manufacturing industry had recorded on average around 3-4 percent profit. Inamori thought this should not be justified. He did not take any approach to the scheme of financial institutions. Instead, he decided to generate a minimum 10 percent of profit, as he believed this percentage is fair compared with that of banking industries. This also allowed Kyocera to develop its high-profit financial structure.

→ In the Kyocera philosophy, Inamori mentioned that over a 30-40 yrs of time frame, it is highly unlikely that a person/ entity can survive over such a long term. Now the era of the banking industry, which had been bolstered with high interest rates, has already been over. Most banks have been suffering from how to survive. Thus, the important message is building up our own target profitability and keeping our fullest efforts toward that. This is the shortcut for us to be the winner and maintain our winner’s position.

So to sum-up, the tips to change your world to “high -profit” are as follows.

Among the above, considering the ethical value of work and money seems to be very important.

Our company, Abrils, has recorded more than 40 percent of profit. To the staff and our clients, we have committed ourselves to keep that ratio.

Further queries or doubts, please email to ytomizuka@abrilsjp.com

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