Magic triangle

The magic triangle is a concept in business administration that represents the three central goals of a company: Safety, profitability and liquidity. Measures to increase profitability can often compromise liquidity or security, and vice versa, creating a tension between these three objectives. To ensure balanced and sustainable corporate management, successful management takes all three objectives into account simultaneously.

1. Profitability

One of the main goals of a company is to operate profitably. This is known as profitability. It is usually measured using key figures such as return on sales or return on equity. It is important to have high profitability in order to survive on the market in the long term and increase the value of the company. However, profitability should not be increased at all costs, as this can lead to risks in terms of liquidity and security.

2. Liquidity 

The company is liquid if it is able to meet its payment obligations on time. In order to maintain ongoing operations and avoid financial bottlenecks, it is important to have sufficient liquidity available. Too little liquidity can lead to solvency problems and ultimately to insolvency. It is therefore important to achieve the right balance between profitability and liquidity.

3. Security

The financial stability and risk avoidance of a company are aspects that contribute to security. These include measures such as adequate capitalization, a diverse customer base and a forward-looking risk policy. Protection against unexpected events and increased resilience in economically uncertain times are ensured by a high level of security.

The Magic Triangle shows how important it is to give equal consideration to profitability, liquidity and security in order to ensure sustainable corporate management. Companies can ensure long-term success and stability by keeping all three goals in mind at the same time and taking appropriate measures. It is therefore crucial to carry out a thorough analysis and planning taking into account the Magic Triangle in order to develop a successful corporate strategy.