Keep calm and allocate capital: Six process improvements
The most effective resource allocation processes are radically simple.
Content: Article | Authors: Tim Koller, Zuzanna Kraszewska | Source: McKinsey Quarterly | Subject: Finance
Biz/Ed Business Series (Spreadsheet-Based Tutorial)
Editor’s Note: All newly updated in July 2024…
This excellent set of spreadsheets was created by Duncan Williamson back in 2000 for Biz/Ed, which was an excellent site but is not defunct (you can still find it and the original spreadsheets on the Internet Archive). He recently got in a nostalgic mood I think and saw that I had referenced his earlier … [ Read more ]
Content: File Download, Online Resource | Author: Duncan Williamson | Source: biz/ed | Subjects: Education, Finance, Free Stuff / Tools, Productivity / Work Tips
Bots, algorithms, and the future of the finance function
Automation and artificial intelligence are poised to reshape the finance function. Knowing what to automate and managing the disruption can lead to a new era of productivity and performance.
Content: Article | Authors: Frank Plaschke, Ishaan Seth, Rob Whiteman | Source: McKinsey Quarterly | Subjects: Finance, IT / Technology / E-Business
Gerry Hansell, Jeff Kotzen, Eric Olsen, Alexander Roos, Eric Wick, Ed Newman, Hady Farag
The theory that value creation comes solely from the act of making positive net present-value investments is of limited use in most modern public companies. Fundamentally, investors price a company’s shares on the basis of their views of the underlying business and the attractiveness of the available reinvestment opportunities. Because such expectations are priced into the stock today, the real value creation task confronting leaders … [ Read more ]
Content: Quotation | Authors: Alexander Roos, Ed Newman, Eric Olsen, Eric Wick, Gerry Hansell, Hady Farag, Jeff Kotzen | Source: Boston Consulting Group (BCG) | Subjects: Finance, Management
Ivo Welch
In a Modigliani-Miller (M&M) perfect capital market, the overall WACC remains the same regardless of capital structure. Mathematically, a capital structure with more leverage has a higher cost of debt and a higher cost of equity but tilts the weighting from higher-cost equity towards lower-cost debt. Of course, the Modigliani-Miller world is primarily a thought experiment.
When the capital markets are not perfect, firms can minimize … [ Read more ]
Content: Quotation | Author: Ivo Welch | Source: Management and Business Review (MBR) | Subject: Finance
Ivo Welch
Models like the CAPM assume perfect capital markets: All investors are alike and compete, so only the project characteristics matter. This view is often too simplistic. Instead, it seems that the CC depends on both project supply (their future cash flows) and project demand (available investor capital).
Content: Quotation | Author: Ivo Welch | Source: Management and Business Review (MBR) | Subject: Finance
Ivo Welch
The workhorse cost of capital (CC) model for nearly half a century has been the Capital Asset Pricing Model, or CAPM. It dominates textbooks, teaching, and practice. Over 90 percent of all publicly-traded companies use it. Courts and appraisers also use it. In many contexts, it is even the only accredited model. Unfortunately, the CAPM is not just imperfect; it is so badly wrong that … [ Read more ]
Content: Quotation | Author: Ivo Welch | Source: Management and Business Review (MBR) | Subject: Finance
How Private Equity Has Evolved to Compete in Global M&A
PE firms have shed old skin and in recent decades become bigger, smarter, and more relevant in M&A and markets than ever before, argues a new paper co-authored by Wharton’s Paul Nary.
Content: Article | Authors: Aseem Kaul, Paul Nary, Shankar Parameshwaran | Source: Knowledge@Wharton | Subjects: Finance, Mergers & Acquisitions
When Information Won’t Reduce Stock Price Volatility Immediately
Where company disclosures are concerned, “the more the merrier” doesn’t always apply; complexity and timing matter too.
Content: Article | Authors: Frederico Belo, Joon Woo Bae, Jun Li, Xiaofei Zhao, Xiaoji Lin | Source: INSEAD Knowledge | Subject: Finance
Jeff Lawson
One of the common mistakes that we, and I’m sure other companies, have made is that you fully allocate your budget at the beginning of the year. You’ve got five people working on one idea, five working on another, and one of those things is just taking off. And when they ask for more resources, leaders often say, “Well, it’s April, we do budget allocation … [ Read more ]
Content: Quotation | Author: Jeff Lawson | Source: First Round Review | Subject: Finance
Why Stock Valuation Hinges More on Returns Than Future Earnings
Growth stocks don’t generate the long-term returns that would justify their high multiples, according to the 2023 Jacobs Levy Center’s “Best Paper,” co-authored by Wharton’s Sean Myers.
Content: Article | Authors: Ricardo De la O, Sean Myers, Shankar Parameshwaran, Xiao Han | Source: Knowledge@Wharton | Subjects: Finance, Market/Investment
When sky-high executive pay is a case of common ownership
Overpaying CEOs is a mechanism that floats all boats but undermines competition and leaves consumers paying more.
Content: Article | Authors: Florian Ederer, Martin Schmalz, Miguel Anton, Mireia Giné | Source: IESE Insight | Subjects: Corporate Governance, Finance
The Cost of Capital: If Not the CAPM, Then What?
Twenty years ago, it would have been considered heresy to doubt the usefulness of the capital asset pricing model (CAPM) in assessing the cost of capital. Ivo Welch argues that, today, the CAPM should not just be doubted—it should be discarded.
Content: Article | Author: Ivo Welch | Source: Management and Business Review (MBR) | Subject: Finance
George Stalk, Jr.
In manufacturing, costs fall into two categories: those that respond to volume or scale and those that are driven by variety. Scale-related costs decline as volume increases, usually falling 15% to 25% per unit each time volume doubles. Variety-related costs, on the other hand, reflect the costs of complexity in manufacturing: setup, materials handling, inventory, and many of the overhead costs of a factory. In … [ Read more ]
Content: Quotation | Author: George Stalk Jr. | Source: Harvard Business Review | Subjects: Finance, Management, Operations
The new finance operating system: 5 key factors that CFOs must get right
Learn more about the five core components of a resilient finance operating system and how this new lens enables your organization to focus on growth in the face of unexpected shocks—and drive organizational success.
Content: Article | Authors: Affan Mian, Christopher Napoli, Jeff Postma, Tawfik Jamjoum | Source: Kearney | Subject: Finance
The Key To Successful Zero-Based Budgeting
To do it right, let go of your company’s “evolutionary past” and take a granular look at where your profitability comes from today—it might surprise you.
Content: Article | Author: Jonathan Byrnes | Source: Chief Executive | Subjects: Finance, Management
Scott A. Snyder, Sanjay Macwan
Instead of just looking at new innovation opportunities through the classic lens of financial impact/ROI, organizations should be evaluating opportunities against a “triple bottom line” consisting of people (community/social impact), profit (financial return), and planet (environmental benefit). There is an opportunity to leverage impact investing metrics like Impact Multiple of Money (IMM) that combine all three lenses.
Content: Quotation | Authors: Sanjay Macwan, Scott A. Snyder | Source: Knowledge@Wharton | Subjects: Finance, Innovation
Margin management in inflationary times: the importance of end-to-end visibility
The leading companies are harnessing the power of data to lessen the impact of inflation on their business and maintain profit margins.
Content: Article | Authors: Cristobal Lowery, Jean-Paul Savelkoul, Remko de Bruijn, Roger van Engelen | Source: Kearney | Subjects: Finance, Operations
6 Factors That Determine Your Company’s Valuation
Investors consult detailed, quantitative models before making decisions. Shouldn’t corporate managers have a similar understanding of how the market values their company, so they can make informed decisions to maximize shareholder value? An EY-Parthenon analysis of quarterly data from thousands of companies in hundreds of industries over a period of 20 years has identified six critical factors that account for most of the variability in … [ Read more ]
Content: Article | Authors: John Trustman, Louise Keely | Source: Harvard Business Review | Subject: Finance
Looking back: Meet the new P/E normal, same as the old P/E normal
Weighted average and median P/E ratios rarely diverge significantly—and when they do, the gap soon closes.
Content: Article | Author: David Schwartz | Source: McKinsey Quarterly | Subjects: Finance, Market/Investment