Harvard Business Review

SEPTEMBER 13, 2017

Our research has found that embedded sustainability drives financial performance through mediating factors such as innovation, operational efficiency, risk reduction, employee recruitment, engagement and retention, customer and supplier loyalty, competitive advantage, reduced cost of capital, and improved marketing and sales.

Supply Chain 8

Supply Chain Net Present Value Retail Cost of Capital 8

Harvard Business Review

JUNE 26, 2015

Managing death more effectively can provide numerous benefits: It can boost profits significantly, lower the cost of capital, and reduce complexity in operations, which can improve the performance of concepts that are in the early and midlife stages.

Retail 8

Retail Cost of Capital Price Discount 8

Harvard Business Review

OCTOBER 13, 2015

The way to do that is to build market share in international markets at a level of profitability that is higher than the cost of capital. If international operations are earning above the cost of capital, the only thing shareholders should really care about is growth in market share.

EPS 8

EPS Short-term Cost of Capital Long-term 8

Harvard Business Review

OCTOBER 15, 2013

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. That outcome reflects the wrong allocation and/or ineffective execution. Don’t delegate them away.

P&L 8

P&L Fixed Assets Charan Delegation 8

Harvard Business Review

APRIL 5, 2017

Repaying such profits to shareholders through share repurchases is better than misinvesting that cash to diversify into unrelated businesses in which management has no expertise or overinvesting in projects that may not return cost of capital. As I said earlier, measuring a company’s short-term orientation is incredibly tricky.

EPS 8

EPS Metrics Depreciation Short-term 8

Harvard Business Review

FEBRUARY 1, 2018

The cost of capital is at historic lows, averaging below 6% for most large U.S. Indeed, for most companies, the value of accelerating growth greatly exceeds the value of returning capital to shareholders. The intrinsic value of a company with growing cash flows doubles every time the discount rate is cut in half.

Supply Chain 9

Supply Chain CEO Discount Retail 9

Harvard Business Review

JULY 25, 2017

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. In its simplest form, it looks like this: The goal, as with any ROI calculation, is to end up with a positive number, and ideally as high a number as possible.

ROI 8

ROI Marketing Marketing Mix Short-term 8

Terry Starbucker

AUGUST 29, 2010

And change it did, because the new CEO had a vision that went beyond product, and costs, and overhead, and costs of capital. It was about passion. And about people who have it. Thirteen years later, the stock price is now above $240, and it has a market cap bigger than Microsoft. That company is Apple.

Technology 282

Technology Price Video Cost of Capital 282

Harvard Business Review

SEPTEMBER 4, 2017

This has not only resulted in less investment in human capital but has also delivered lower total shareholder returns despite a period in which the cost of capital (and thus the cost of investing for growth) has been extraordinarily low. It’s not money that’s in short supply; it’s good growth ideas.

Human Capital 15

Human Capital Kaizen Agility Energy 15

Harvard Business Review

JULY 31, 2017

Based on our recent worldwide survey of 2,000 incumbent companies across all major industries and countries, we estimate that the average return on incumbent digital initiatives is below 10% — barely above the cost of capital.

Strategy 8

Strategy ROI Technology Cost of Capital 8

Harvard Business Review

AUGUST 27, 2015

Companies in the top one-fifth of profitability earn, in aggregate, about 70 times more economic profit (accounting profit less cost of capital) than those in the middle three-fifths combined, according to McKinsey’s database of 3,000 large, publicly listed, nonfinancial U.S. Consider what’s happening among corporations.

ROIC 8

ROIC McKinsey GDP Company 8

Harvard Business Review

OCTOBER 10, 2017

For any business to succeed over the long term, it must earn a return that exceeds its cost of capital. It is through continuously making incremental progress in lowering costs and increasing revenues that firms achieve competitive advantage in their industry. Here are four things leaders can do.

Innovation 8

Innovation P&L ROI Long-term 8

Harvard Business Review

APRIL 26, 2017

Banks’ cost of capital is typically 50 basis points or less. These low-cost and reliable sources of funds are from taxpayer-insured deposits and the Federal Reserve’s discount window. ” Can banks out-compete the disruptors?

Banking 12

Banking Stage-Gate Credit Scoring Competitive Advantage 12

Harvard Business Review

OCTOBER 21, 2016

Hoping to alleviate their concerns, this article also provides concrete examples of how sustainability benefits the bottom line. Drawing from our own research and our colleagues’ research in this area, we have created a sustainability business case for the 21 st century corporate executive.

Supply Chain 8

Supply Chain Price Loyalty Efficiency 8

Harvard Business Review

MARCH 28, 2016

As a result, family equity can come at a very low cost of capital, where businesses can meet the annual needs of their shareholders without having to worry about paying back the principal. Without external markets to please, they can take a long-term perspective and make decisions on the basis of sustainable economic value.

Long-term 8

Long-term Short-term Reputation Incentives 8

Harvard Business Review

AUGUST 21, 2015

Read refreshers on net present value , breakeven quantity , debt-to-equity ratio , and cost of capital. Your current price elasticity is just one data point that helps you make those future decisions.

Price 8

Price Debt to Equity Ratio Marketing Metrics 8

Harvard Business Review

SEPTEMBER 8, 2014

The goal of strategy is profitable growth, meaning economic value above the firm’s cost of capital. Smartly reducing assets devoted to activities that earn less than their cost of capital requires good links with evolving market realities. ( Isn’t that a function of risk parameters and the debt-to-equity ratio?

Debt to Equity Ratio 10

Debt to Equity Ratio Cost of Capital Strategy Incentives 10

Harvard Business Review

MAY 24, 2017

Invest human capital just like you invest financial capital. For financial capital, the business world has developed concepts such as the opportunity cost of capital, which is reflected in a company’s weighted average cost of capital.

Human Capital 15

Human Capital Management Company ROCE 15

Harvard Business Review

DECEMBER 13, 2017

Investors punish companies with a short-term orientation by applying higher discount rates to them, which increases the cost of capital for those companies. In contrast, companies with a long-term orientation are rewarded with a lower cost of capital, which allows them to afford more innovation—a virtuous cycle.

Short-term 8

Short-term Decentralization Company Trends 8

Harvard Business Review

FEBRUARY 7, 2017

The capital charge equals the amount of invested capital times the opportunity cost of capital — that is, the return that shareholders expect to earn from investing in companies with similar risk. In this case its capital charge is $800 times 8%, or $64.

Long-term 8

Long-term EPS Short-term Management 8

Harvard Business Review

MAY 25, 2018

Today’s low cost of capital creates a powerful financial incentive to put money to work by investing in a portfolio of ideas and capabilities. Companies will need to double down on what works and quickly cull the losers.

Incubator 8

Incubator Insurance Cost of Capital Competitive Advantage 8

Harvard Business Review

SEPTEMBER 26, 2016

My minimums would be: treating employees well, having a positive impact on the environment, living within the spirit (not just the letter) of the relevant laws, and earning a return above the cost of capital. Such a system would make managerial choices as clear-cut and straightforward as pursuing shareholder value maximization.

Objective 8

Objective Cost of Capital Bottom-up Environment 8

Harvard Business Review

NOVEMBER 7, 2012

Alfred Rappaport's article, " Stock Market Signals to Managers ," in the November-December 1987 issue of the Harvard Business Review, provides managers with a clear method for understanding how price reflects the market's expectations about the company's future financial performance.

Price 8

Price Analysis Cost of Capital Disruptive Innovation 8

Harvard Business Review

APRIL 2, 2014

Others, most notably money managers and former Fama students Cliff Asness and John Liew in an epic Institutional Investor article , have done a lot recent to clarify how Fama’s ideas and Shiller’s can at least co-exist peacefully. It’s a quite technical article, and while our conversation was formula-free it got pretty wonky as well.

CAPM 8

CAPM Discount Price Finance 8

Strategy Driven

SEPTEMBER 9, 2011

The logic of NPV is to project cash flows into the future and then discount those flows back into today’s dollars at a given cost of capital. If you enjoyed this article, let us keep you up-to-date on other newly published insights by signing up for our complimentary StrategyDriven Newsletter. All rights reserved.

Innovation 50

Innovation NPV Business Model Constraint 50

Harvard Business Review

MARCH 1, 2017

Done right, ICOs can not only improve the efficiency of raising money, lowering the cost of capital for entrepreneurs and investors, but also democratize participation in global capital markets. If the world of venture capital can change radically in one year, what else can we transform?

Finance 8

Finance IPO Banking Venture Capitalist 8