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 other is a process called Opportunity Engineering (OE) that instills a different way to look at value. To define the full value of acquisitions analyze the target's assets and assign them across the Three Horizons of the acquirer to understand how they add value. We call this the Opportunity Value (OV) of an asset.

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

Harvard Business

If our oceans suddenly turned to chocolate, the incremental value of that volume would plummet — we’d truly have more chocolate than we really needed. 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.

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

Harvard Business

But having a grasp of terms like EBITDA and net present value are important no matter where you sit on the org chart. The Refresher: Net Present Value. 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.

Stop Focusing on Profitability and Go for Growth

Harvard Business

Today, the average cost of equity capital sits at close to half that: just 8% for the roughly 1600 companies comprising the Value Line Index. The ready access to low-cost capital should change the way business leaders think about strategy, and in particular the relative value of improving profit margins versus accelerating growth. But when capital costs are low, the time value of money is low. The Refresher: Net Present Value.

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Is Your Business Biased Against Innovation?

Strategy Driven

Many conventional metrics we use to estimate value are based on faulty assumptions. 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. For instance, intelligent failures can add more value than predictable successes, and low-cost experimentation trumps analysis.

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