Harvard Business Review

MARCH 10, 2011

It's the opening paragraph of a Harvard Business Review article called "What's Your Real Cost of Capital?" The motivation behind it, as with many, many articles published over HBR's nearly 90-year history, was to take an effective practice developed in one corner of industry and spread it to managers everywhere. by James J.

CAPM 13

CAPM Cost Discounted Cash Flow Cost of Capital 13

Harvard Business Review

APRIL 16, 2015

Unless your company’s return on capital exceeds its cost of capital, no amount of revenue growth can create value. For the many firms whose cost of capital and return on capital are roughly equal, in fact, the only path to value creation is to increase return on capital.

CEO 8

CEO ROIC Cost of Capital Merton 8

Harvard Business Review

JUNE 26, 2015

A major challenge for all retailers is managing the closures in a way that maximizes revenues and profits. Our studies of a wide range of retailers have found that companies often have the most difficulty managing death. Over time, retailers have identified and adopted many innovative ideas to manage these complex tasks.

Retail 8

Retail Cost of Capital Price Discount 8

Harvard Business Review

APRIL 5, 2017

However, firms can efficiently increase margin growth without much revenue growth by managing to squeeze out their fixed costs to service the same level of output. Many compensation plans reward managers for higher earnings and higher stock prices, as opposed to rewarding them for adding long-term value to the firm.

EPS 9

EPS Metrics Depreciation Short-term 9

Harvard Business Review

JULY 25, 2017

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

ROI Marketing Marketing Mix Short-term 8

Harvard Business Review

SEPTEMBER 4, 2017

In research for our book, Time, Talent and Energy, my co-author Michael Mankins and I found that such investments do indeed pay off: The top-quartile companies in our study unlocked 40% more productive power in their workforce through better practices in time, talent and energy management. For knowledge workers, time is incredibly scarce.

Human Capital 15

Human Capital Kaizen Agility Energy 15

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

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. Indeed, for most companies, the value of accelerating growth greatly exceeds the value of returning capital to shareholders.

Supply Chain 9

Supply Chain CEO Discount Retail 9

Harvard Business Review

APRIL 16, 2012

Strategic cash usually is invested in high quality short-term securities; this ensures safety and liquidity, but produces a meager return on investment—especially in a low interest rate environment—and does not achieve the company's cost of capital. How Should You Approach Strategic Cash?

Company 13

Company Cost of Capital Finance Long-term 13

Harvard Business Review

MARCH 10, 2011

Many are deeply uncertain about which initiatives they should fund — and one root of this indecision is a general lack of confidence in the cost of capital projections they are using to make the call. We find that 55 percent of respondents are convinced their cost of capital estimates are off by more than 50 basis points.

Cost of Capital 13

Cost of Capital CAPM Cost Discounted Cash Flow 13

Harvard Business Review

OCTOBER 25, 2018

To analyze the superstar dynamics of firms, our metric was economic profit, a measure of a firm’s profit above and beyond opportunity cost. (To To do this, we take the firm’s returns, deduct the cost of capital, and multiply by the firm’s total invested capital.)

Industry 13

Industry Company GDP Bottom-up 13

Harvard Business Review

NOVEMBER 4, 2014

Divestment can theoretically address this market failure by limiting investment by the fossil fuel industry by depressing company valuations and thereby increasing the cost of capital. For many companies, most of the capital expenditures are financed from internal cash flows and bank financing.

Finance 8

Finance Cost of Capital Constraint Price 8

Harvard Business Review

NOVEMBER 4, 2014

Divestment can theoretically address this market failure by limiting investment by the fossil fuel industry by depressing company valuations and thereby increasing the cost of capital. For many companies, most of the capital expenditures are financed from internal cash flows and bank financing.

Finance 8

Finance Cost of Capital Constraint Price 8

Harvard Business Review

APRIL 23, 2015

“These ideas are more than 30 years old,” managers complain. The basic principles are: If you want to earn above the cost of capital (if you want to create value), you must get a higher return on your efforts than the average competitor. “Isn’t there anything more recent?”

Strategy 8

Strategy Porter Price Cost of Capital 8

Harvard Business Review

FEBRUARY 2, 2012

Today, only 9% of businesses in the world have achieved even a modest level of sustained, profitable growth over the past decade on average (5.5%, earning cost of capital) and that is declining — even though virtually all the businesses aspire to something like this or more.

Competitive Advantage 15

Competitive Advantage Porter Goleman Emotional Intelligence 15

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.

P&L 8

P&L Fixed Assets Charan Delegation 8

Harvard Business Review

MAY 24, 2017

Today’s executives spend a lot of time managing the balance sheet, despite the fact that it doesn’t represent their company’s scarcest resource. Financial capital is relatively abundant and cheap. According to Bain’s Macro Trends Group, the global supply of capital stands at nearly 10 times global GDP.

Human Capital 15

Human Capital Management Company ROCE 15

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. That’s why good managers put so much focus on measuring and managing return on investment (ROI) as a basic operational practice. Here are four things leaders can do. Don’t Get Trapped in Your P&L.

Innovation 8

Innovation P&L ROI Long-term 8

Harvard Business Review

OCTOBER 3, 2011

Critics imply that managing for shareholder value is all about maximizing the short-term stock price. Companies that manage for shareholder value, the thinking goes, do whatever it takes to engineer an ever-higher market price. If the market doesn't respond, management can take action to benefit from the value gap.

Short-term 12

Short-term Long-term Price CEO 12

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. Organization: From Managing Complexity to Rapid Response. The leading companies of the 2oth century were behemoths.

Long-term 8

Long-term Short-term Reputation Incentives 8

Harvard Business Review

JUNE 18, 2015

What have been less explored are the specific actions taken by private equity (PE) fund managers. In a survey of 79 PE firms managing more than $750 billion in capital, we provide granular information on PE managers’ practices and how firms’ strategies relate to the characteristics of their founders.

CAPM 8

CAPM Discounted Cash Flow Company Rate of Return 8

Harvard Business Review

NOVEMBER 20, 2013

Good analysis in the hands of smart managers does not automatically yield great strategy. Managers appear to be most at risk of doing too little, not too much. Companies run by decisive CEOs rack up more economic profit — what’s left of operating profit after the cost of capital is subtracted – than competitors do.

Strategy 8

Strategy McKinsey Strategic Planning Cost of Capital 8

Harvard Business Review

APRIL 9, 2015

But before anyone writes a check, you need to calculate the return on investment (ROI) by comparing the expected benefits with the costs. Analyzing ROI isn’t always as simple as it sounds and there’s one mistake that many managers make: confusing cash and profit. Financial analysis Project management'

ROI 8

ROI Analysis Rate of Return Net Present Value 8

Harvard Business Review

MARCH 31, 2015

While consumers are rightfully worried that their personal information may be compromised, shareholders and companies’ management have a wider set of concerns, including loss of intellectual property, operational disruption, decreased customer trust, tarnished brand, and loss of investor commitment.

Price 8

Price Long-term Banking Short-term 8

Harvard Business Review

FEBRUARY 7, 2011

Take, for instance, a group of companies that currently have high returns on invested capital (ROIC). If you follow that group over time, you would see their ROICs revert back toward the cost of capital. As important, the rate of reversion to the mean is a function of the relative contribution of luck.

Skills 15

Skills ROIC Sports Cost of Capital 15

Harvard Business Review

MAY 4, 2012

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.

CFO 11

CFO Metrics Price Depreciation 11

Harvard Business Review

JUNE 22, 2015

“It’s one of the more popular ways that managers calculate marketing ROI,” says Avery, pointing out that other common ones include calculating the investment payback period, calculating an internal rate of return, and using net present value analysis. What are some of the common mistakes managers make when using BEQ?

Payback Period 8

Payback Period Fixed Costs Analysis Price 8

Harvard Business Review

AUGUST 21, 2015

This is one of the key metrics for marketing managers, says Avery. You’ll hear managers say, “my product is price sensitive” or “we’re lucky to have a product that’s not sensitive to price.” ” What are some of the common mistakes managers make with price elasticity?

Price 8

Price Debt to Equity Ratio Marketing Metrics 8

Harvard Business Review

FEBRUARY 7, 2017

Companies deliver superior results when executives manage for long-term value creation and resist pressure from analysts and investors to focus excessively on meeting Wall Street’s quarterly earnings expectations. In this case its capital charge is $800 times 8%, or $64. This has long seemed intuitively true to us.

Long-term 8

Long-term EPS Short-term Management 8

Harvard Business Review

OCTOBER 21, 2016

These require sophisticated, sustainability-based management. Yet executives are often reluctant to place sustainability core to their company’s business strategy in the mistaken belief that the costs outweigh the benefits. ” Improving risk management. billion in mining projects since 2010. Fostering innovation.

Supply Chain 8

Supply Chain Price Loyalty Efficiency 8

Harvard Business Review

OCTOBER 11, 2013

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 They even sued one fund manager. Doom and Gloom.

Case Study 8

Case Study CFO Hedge PR 8

Harvard Business Review

SEPTEMBER 8, 2014

The goal of strategy is profitable growth, meaning economic value above the firm’s cost of capital. Hence, the customer-selection criteria of sales managers, and call patterns of sales reps, directly impact the first value-creation lever: which projects the firm invests in. But consider the basics.

Debt to Equity Ratio 11

Debt to Equity Ratio Cost of Capital Strategy Incentives 11

Harvard Business Review

NOVEMBER 25, 2013

CMOs must demonstrate and track marketing’s impact by focusing on key performance indicators (KPIs) that are important for shareholder value such as strong cash flow, cost of capital, return on capital, and operating margin. Shareholders don’t care about fans or followers unless those numbers can be tied to profit.

CFO 8

CFO Short-term Long-term Benchmarking 8

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

MAY 25, 2018

” Another is, “How will a company like that ever be managed?” The most successful will develop clear joint goals and an entrepreneurially enabled management style that focuses more on outcomes than on control. Of course, we can already hear the objections coming from the grizzled veterans of traditional M&A.

Incubator 8

Incubator Insurance Cost of Capital Competitive Advantage 8

Harvard Business Review

SEPTEMBER 26, 2016

“Stakeholder theory” or “triple-bottom-line thinking” will just leave management dazed and confused because it is unclear how these multiple objectives should be traded off. But organizations have to deal with competing priorities all the time.

Objective 8

Objective Cost of Capital Bottom-up Environment 8

Harvard Business Review

NOVEMBER 7, 2012

There is a fascinating relationship between executives and the stock prices of the companies they manage. You start by using analysts' reports and other sources to gauge the consensus expectations for value drivers — sales growth, operating profit margins, cost of capital and other factors that determine cash flows.

Price 8

Price Analysis Cost of Capital Disruptive Innovation 8