10 Reasons Why Every Manager Should take a Finance Course

Great Leadership By Dan

You’ll understand that the people or companies that buy your products are not your only customers; the shareholders that buy your stock are customers too. Caution: when employees feel like owners, no more wasting money on expensive furniture, management boondoggles, or projects with a poor net present value. We just finished a “ Finance and Accounting for the Non-Financial Manager ” program this week for a large client.

A Refresher on Internal Rate of Return

Harvard Business Review

You’ve got a great idea for a new product that will increase revenue or a new system that will cut the company’s costs. There are a variety of methods you can use to calculate ROI — net present value , payback, breakeven — and internal rate of return , or IRR.

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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. For instance, intelligent failures can add more value than predictable successes, and low-cost experimentation trumps analysis. You will learn how to identify and prioritize your company’s full portfolio of opportunities – from new product lines to entirely new businesses.

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How to Quantify Sustainability’s Impact on Your Bottom Line

Harvard Business Review

We found that sustainable and deforestation-free practices created significant financial benefits for all players in the industry’s value chain. Specifically, our analysis found that the net benefits to ranchers ranged from $18 million to $34 million (12% to 23% of revenues) in net present value projected over 10 years. These values can be estimated credibly and cost-effectively, and we set about applying them to the Brazilian beef sector.

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

Harvard Business Review

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. When your product can become more valuable to your customers over time, the way you prioritize building features and harvesting profits within a business needs to change. That ecosystem investment reinforces the value proposition and drives more developer adoption. The Refresher: Net Present Value.

Why We Need to Update Financial Reporting for the Digital Era

Harvard Business Review

In our recent HBR article , we argued that financial statements fail to capture the value created by modern digital companies. and (ii) how can digital firms improve their financial reports to communicate sources of value creation in their businesses? Business students have traditionally considered net present value, payback period, and hurdle rates as necessary tools to determine which project to select. Martin Konopka/EyeEm/Getty Images.

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

Harvard Business Review

But having a grasp of terms like EBITDA and net present value are important no matter where you sit on the org chart. After all, if you’re trying to sell a product or strategy, you need to be able to demonstrate that it is both practical and high margin. The Refresher: Net Present Value. “Think of yourself as a miniature profit and loss statement: How do you add value?”

What If Investors Who Held Their Shares Longer Got More Voting Power?

Harvard Business Review

” Laying out their data, they find that long-term oriented companies create more financial value and more jobs. I agree with their vision of a future in which more companies focus on the long term and become more productive for the world (their findings accord with my own work on the dangers of short-termism ). The Refresher: Net Present Value.

The Most Common Mistake People Make In Calculating ROI

Harvard Business Review

You might also find that your accounts receivable (A/R) — what customers owe you for services rendered or products delivered — rises by $1 million. You have to account for the time value of money.

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Debt and the Future of the U.S.

Harvard Business Review

trillion, roughly 10% of gross domestic product (GDP). Consider, for example, that the estimated net present value of obligations under the Social Security system is approximately $8 trillion. Even more problematic is that the Medicare system has a vested unfunded net liability of approximately $38 trillion. The total value of explicit loan guarantees is well over $10 trillion. trillion, while the total net revenue for the government was only $2.2

Hospital Budget Systems Are Holding Back Innovation

Harvard Business Review

The IPU is an essential component of the value-based care model advocated by Harvard Business School’s Michael Porter. While this might seem like a radical step for hospitals, it is exactly the transition that occurred 100 years ago in the business world in general when companies shifted from a departmental or functional structure to a decentralized, business-unit structure that that was more aligned with and accountable for its products, services, and customers.

A Refresher on Price Elasticity

Harvard Business Review

Setting the right price for your product or service is hard. Most customers in most markets are sensitive to the price of a product or service, and the assumption is that more people will buy the product or service if it’s cheaper and less will buy it if it’s more expensive.

The Most Common Reasons Customer Experience Programs Fail

Harvard Business Review

Often, these results are accepted at face value. But the problem with this approach is you really can’t control for all other things that could cause scores to rise, and you can’t assume that a rise in scores is good for net revenue. Customer Lifetime Value : This is the net present value of all future customer revenues with account for attrition and your discount rate. It’s either in a state of growth, peak productivity, or decline.

Warren Buffett's 2010 Shareholder Letter: What to Expect

Harvard Business Review

Establish "an unbending standard of performance" : Since 1965, Buffett has annually compared Berkshire's compounded growth in book value per share to the growth in the S&P 500 (plus dividends). But why compare apples (book value) to oranges (share price and dividends)? Buffett explains that book value is the best proxy for "intrinsic value," the net present value of all estimated future cash flows. billion more than their total tangible book value.

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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.

Stop Focusing on Profitability and Go for Growth

Harvard Business Review

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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What Xerox PARC Learned About Executing on Open Innovation

Harvard Business Review

However, we learned the difficult lesson that unless we could clearly articulate the maturity level and value proposition for a new technology within the context of our partners' other choices, there was little or no value in the technology — regardless of how much money we had invested in it. It's hard to value an idea without understanding just how much time and money it will take to implement it. Net Present Value ).

Rethinking Valuation So You Don't Miss a Good Deal

Harvard Business Review

The other is a process called Opportunity Engineering (OE) that instills a different way to look at value. Horizon 3 (H3) represents opportunities for future growth that may take the form of new products, services, capabilities, and perhaps extensions into non-adjacencies that show great promise but are highly uncertain. 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.

An HBR Refresher on Breakeven Quantity

Harvard Business Review

“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.

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. If you’re evaluating the rights to new shale oil reserves in a place like North Dakota, today you’d rely instead on a different economic model: option value. But Facebook has also bought itself time to figure out how to extract value from that audience.

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How CMOs Can Get CFOs on Their Side

Harvard Business Review

CFOs are more interested in capital investment estimates, net present values, and a clear outline of the trade-offs of any investment. Adding to the complexity is marketing’s increasing need to integrate with other functions in the organization to discover relevant insights from data, design products and offers, and then deliver them to the marketplace. As a long-term asset of significant value, the brand should be part of those calculations.

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The Big Trends Changing Community Development

Harvard Business Review

From the private sector, the trend is toward recognizing the business value of community progress. What began as charity-minded Corporate Social Responsibility (CSR) programs have evolved into pursuits of “shared value.” Improved community health has lowered absenteeism in the work force and increased productivity by a measurable amount higher than the cost of the program itself. Big trends in business and society tend to march along at a measured pace.

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