Rethinking Valuation So You Don't Miss a Good Deal

Harvard Business Review

To do this, we combine two separate frameworks: the first is the Three Horizon strategic model developed by McKinsey. The higher level of uncertainty associated with H2 and H3 necessitates an updated valuation methodology that takes into account more than the net present value (NPV) of the target. The two together, NPV + OV, provide an inclusive but not inflated valuation. Mergers & Acquisitions NPV OE OV

Will You Be Writing Off Your Investment in Egypt?

Harvard Business Review

Anyone who has had to make the argument for an investment knows the basic tool involved: a Net Present Value (NPV) calculation. The overall value of a foreign investment is equal to the NPV of the expected stream of profits for the life of the investment. Given that annual profit level and that discount rate, it is straightforward to calculate the NPV of such an infinitely lived foreign investment. Economy Global business Government NPV

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What Happens When Features Are Dropped To Make a Launch Date?

The Idolbuster

When the original product was scoped, it was designed to meet a set of unmet customer needs, and she created a healthy revenue forecast to justify the expense of development. Sabina explained that she felt “pressured to show there is value in doing the project, a positive NPV. This in turn meant that additional development resources were not allocated to help the product grow. Chapter 9: Paint Your Environment Part 7.

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Why Some Digital Companies Should Delay Profitability for as Long as They Can

Harvard Business

For years, AWS has invested in driving developer and company adoption of its platform by driving down prices and introducing low cost features to make developer’s lives easier. That ecosystem investment reinforces the value proposition and drives more developer adoption. Next time you're deciding about a big investment, NPV can help you make a more informed decision. Nicholas Blechman for HBR.

Reflecting on David Garvin’s Imprint on Management

Harvard Business

Garvin was a generalist more than a specialist, perhaps because he came of age at HBS during the 1980s, when the school’s primary focus was the development of skilled general managers. One of the many articles circling back to this topic of late revisited the still-common use of NPV hurdles in investment decisions.) Case closed (until engineers develop an algorithm that does the job better).

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Stop Focusing on Profitability and Go for Growth

Harvard Business

Next time you're deciding about a big investment, NPV can help you make a more informed decision. In our experience, companies still focus more on cutting costs than on developing and executing new growth strategies. The global financial crisis prompted many companies to pull in their horns, hoard cash, trim costs, and take a wary view of large investments. Yet the same crisis ushered in a new age of capital superabundance.

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How to Improve Your Finance Skills (Even If You Hate Numbers)

Harvard Business

Next time you're deciding about a big investment, NPV can help you make a more informed decision. Your goal is to develop a deep understanding of the precise “link between profit and loss” and how that affects your organization’s performance over time, says Knight. ” The goal is to develop an understanding of how your day-to-day actions help your employer to “drive revenue or mitigate costs,” he says.

Is Your Business Biased Against Innovation?

Strategy Driven

Net present value [NPV] is a case in point. 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. The authors then show how to best execute specific initiatives, test major project assumptions, and develop a culture that values disciplined experimentation and learning over meeting mindless and unrealistic goals.

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Lafley’s P&G Brand Cull and the 80/20 Rule

Harvard Business Review

Declaring he’d cull up to 100 brands — many of which he’d acquired and developed — P&G CEO A.G. The demands of 80/20 criteria shifts the innovation emphasis away from more traditional financial metrics around DCF , IRR , and NPV and toward better understanding of how novelty preserves, protects, and extends the 80/20 franchise. Lafley launches a “game changer” profoundly different than what he championed in his eponymous 2008 bestseller.

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Life's Long Cruise? Planning for a Second "Me" Career

Harvard Business Review

Even modest continued earnings dramatically change the NPV calculation. Most gloom and doom commentaries about future economic trends in developed nations are based on the assumption that people will choose to spend the last 30 years of their lives on a long cruise — consuming resources, while making no productive contribution. I love meeting people who are planning to retire soon. What are you planning to do?" I always ask.

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