1173 Posts Found

The economic principles of valuation don’t change that much, but McKinsey Partner Tim Koller explains why they remain more critical than ever as executives seek to address digital, geopolitical, climate, and other trends affecting their businesses.

Content: Article | Authors: Roberta Fusaro, Tim Koller | Source: McKinsey Quarterly | Subjects: Economics, Finance

A finance professor argues that markets remain efficient only if enough people believe they are not.

Content: Article | Author: Mitchell A. Petersen | Source: Kellogg Insight | Subject: Finance

Net present value is the bedrock of ROI estimates, but adding other factors to the analyses can help business leaders see how projects can advance corporate priorities beyond financial returns.

Content: Article | Authors: Chris Griggs, Kate Siegel, Mary Helen Matthews, Matt Banholzer | Source: McKinsey Quarterly | Subject: Finance

Sometimes borrowing makes sense, to borrow to invest into something productive. But if you borrow just to consume, then eventually you get in trouble and your debt ratios become too high relative to your need to pay back your debts over time. It could be a problem for households, for the business sector, financial institutions, for governments, for a country as a whole.

Content: Quotation | Author: Nouriel Roubini | Source: McKinsey Quarterly | Subjects: Economics, Finance

Many perceive the markets as short-term oriented, forcing management to worry only about quarterly earnings. Our research shows that successful companies are typically those with longer-term horizons. There are plenty of investors who have long-term horizons as well, but they generally need to talk to a company only once or twice a year to make their decisions. Short-term investors are noisier. They probably drive the … [ Read more ]

Content: Quotation | Author: Tim Koller | Source: McKinsey Quarterly | Subjects: Economics, Finance

Value creation comes from revenue growth and return on capital, which drive cash flows.

Content: Quotation | Author: Tim Koller | Source: McKinsey Quarterly | Subject: Finance

The most effective resource allocation processes are radically simple.

Content: Article | Authors: Tim Koller, Zuzanna Kraszewska | Source: McKinsey Quarterly | Subject: Finance

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

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

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

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

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

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

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

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

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

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

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

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

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