article thumbnail

Rethinking Valuation So You Don't Miss a Good Deal

Harvard Business Review

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. We call this the Opportunity Value (OV) of an asset. Alexander B.

NPV 14
article thumbnail

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. If the owner of that subsidiary discounts profits in Egypt by 12.5

NPV 13
Insiders

Sign Up for our Newsletter

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

article thumbnail

When It Pays to Think Like a Finance Manager

Harvard Business Review

Do you think they’re going to do a net present value (NPV) analysis that shows they don’t need that computer? They figure out how much the new computer system and software will cost and they compare that with the cash flow generated through efficiencies (assuming they know how to analyze returns based on cash flow).

article thumbnail

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

Harvard Business Review

The most important concepts to grasp are “how to measure profitability, EBITDA, operating income, revenue, and operating expenses,” he says. Next time you're deciding about a big investment, NPV can help you make a more informed decision. . Related Video. The Refresher: Net Present Value.

article thumbnail

Why Is an App Worth as Much as a Small Oil Field?

Harvard Business Review

While on the surface, the dirty business of fossil fuels is nothing like Silicon Valley, many in the oil business have moved beyond the standard net present value (NPV) model for assessing the merit of investments. But Facebook has also bought itself time to figure out how to extract value from that audience.

NPV 8
article thumbnail

Old Buildings Are U.S. Cities’ Biggest Sustainability Challenge

Harvard Business Review

Today large commercial buildings address only two percent per year of the NPV-positive investments in efficiency that are available to them. This is especially true in the commercial buildings market, specifically large commercial buildings, where well over 75 percent of existing buildings will still be in use in fifteen years’ time.

NPV 8
article thumbnail

Reflecting on David Garvin’s Imprint on Management

Harvard Business Review

One of the many articles circling back to this topic of late revisited the still-common use of NPV hurdles in investment decisions.) But the article aimed higher, arguing that when corporate leaders invest with short-term results in mind, they put long-term performance at risk. Sound familiar?