article thumbnail

A Refresher on Cost of Capital

Harvard Business Review

You’ve got an idea for a new product line, a way to revamp your inventory management system, or a piece of equipment that will make your work easier. You’ll likely be asked to show that the return on the investment will be better than your company’s cost of capital. What is the cost of capital?

article thumbnail

A Refresher on Marketing ROI

Harvard Business Review

While MROI is not usually public information, managers can use published financial statement data to estimate MROI for a competitor. Some companies establish a threshold for MROI that takes into account its risk tolerance and cost of capital, below which they are hesitant to make investments. Holding themselves accountable.

ROI 8
Insiders

Sign Up for our Newsletter

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

article thumbnail

Providing Earnings Guidance? Think Again

Harvard Business Review

Although the empirical evidence is mixed, this argument has intuitive logic: Because investors abhor uncertainty, knowing management's expectations is a valuable data point that can strengthen their confidence in the investment. FD) constraints. After weighing the pros and cons, I come down on the side of not providing guidance.

CFO 11
article thumbnail

Should Companies Retain "Strategic" Cash?

Harvard Business Review

Often citing the maxim that "cash is king", CFOs know that strategic cash can enhance shareholder value in various ways. As long as the CFO can stipulate that the company does not intend to repatriate the cash, it avoids the incremental tax that will be levied due to the territorial system of U.S. It can: Save Taxes.

Company 13
article thumbnail

How CMOs Can Get CFOs on Their Side

Harvard Business Review

In our work with clients across dozens of sectors over more than five years, we have found that the strongest CMO/CFO partnerships develop when both parties undertake five actions: 1. CMOs need to start building this relationship by having a clear understanding of what CFOs expect.

CFO 8
article thumbnail

The Three Decisions You Need to Own

Harvard Business Review

At many companies the total cash investment in acquisitions, R&D, and fixed assets has not earned back its cost of capital after adjusting for the time lag in realizing incremental benefits. As Keith Sherin, then GE’s CFO put it, “This is where the growth is. We are shifting our center of gravity.”

P&L 8
article thumbnail

Case Study: A Short-Seller Crashes the Party

Harvard Business Review

When the well-known hedge fund manager and short-seller Jeremiah Hughes first put Terranola in the spotlight, issuing ominous warnings about unsold products, a looming patent expiration, and flawed growth projections, the considered judgment of the executive team was to do nothing. “I As CFO, A.J. They even sued one fund manager.