Fact and Fantasy About Buybacks: The International Evidence

Buybacks are under attack as a short-term stock price manipulation scheme, allowing insiders to cash out at inflated stock prices. This manipulation hypothesis predicts that, as a result of buybacks, companies will underinvest, undermining long-term performance and shareholder value. Recent research tests this hypothesis using an international sample that contains approximately 10,000 buyback announcements made by U.S. firms and 10,000 made by non-U.S. firms … [ Read more ]

If Cash Is King, Why Doesn’t It Rule?

With tax rules changing and interest rates set to rise globally, companies need to organize their operations around a new value equation.

The Bitcoin Boom: Asset, Currency, Commodity or Collectible?

Ostensibly about Bitcoin, this is an excellent finance/economics article that explains the differences between assets, currencies, commodities and collectibles and the difference between trading (pricing) and investing (valuing).

The Real Value of Your Company

When your company establishes a credible long-term strategy — including a way to play in the market and the capabilities to deliver — it sets up a high level of certainty. In valuation terms, your market value (your shareholders’ expectations) will more closely reflect your intrinsic value (the profits you consistently create). This is a tremendous source of strength, but it also triggers the paradox … [ Read more ]

The Journey to Exceptional Performance

When it comes to corporate financial performance, we typically think in absolute terms, measuring ROA in percentage points. We are less accustomed to thinking of corporate performance in relative terms, but knowing a company’s relative performance is essential to setting and achieving performance improvement targets and, eventually, exceptional performance.

204 Common Mistakes to Avoid When Valuing a Company

Valuing companies is as important as it is dangerous. A miscalculation or faulty method can prove quite costly in negotiations and investing. Moreover, there is no single, foolproof method, and absurd results are often obtained, such as those cited by IESE’s Pablo Fernández in his document cataloging 204 mistakes in company valuations. The author organizes the common mistakes into seven groups – covering errors in … [ Read more ]

A New, Dynamic Way to Measure Value

Shareholders are not the only ones to benefit from the value created by a firm. Employees, customers and suppliers reap rewards, too. Introducing a new tool to measure value creation dynamically, over time: the Value Creation and Appropriation (VCA) model. IESE’s Roberto Garcia-Castro and co-authors discuss its practical implications for firm strategy.

The Marriage of Tax and Strategy

Make a commitment to the function that knows your company best.

The Case for Stock Buybacks

If paying excessive CEO salaries is the most maligned use of corporate funds, stock buybacks may well take second place. Conventional wisdom is that CEOs buy back stock to manipulate the short-term stock price. They fund the buyback by cutting investment, and so firm value suffers in the long-term. As Senator Elizabeth Warren argued, “stock buybacks create a sugar high for the corporations. It boosts … [ Read more ]

Share Buybacks Are Corporate Suicide

When firms invest too heavily in buying back shares, there is likely to be trouble ahead.

Silicon Valley’s Unicorns Are Overvalued

New research examines fair market value of startups worth over $1 billion and finds huge discrepancies in their purported worth.

The Dangerous Seduction of the Lifetime Value (LTV) Formula

Many consumer Internet business executives are loyalists of the Lifetime Value model, often referred to as the LTV model or formula. Lifetime value is the net present value of the profit stream of a customer. This concept, which appears on the surface to be quite benign, is typically used to compare the costs of acquiring a customer (often referred to as SAC, which stands for … [ Read more ]

Startup Financial Modeling

A four-part series that aims to guide you through the components necessary for building your own financial model from scratch:
Part 1: The Why and What of Financial Modeling
Part 2: Assumptions
Part 3: Income Statement and Custom Detail Tabs
Part 4: Cash Flow, Balance Sheet and Keeping the Model Updated

“Option Games”: Filling the Hole in the Valuation Toolkit for Strategic Investment

The paper describes how strategic decisions can benefit from analysis using techniques drawn from both real options and game theory. It explains the trade-off between flexibility and strategic commitment and offers a toolkit for making choices in competitive markets.

How Customer Behavior Can Be Used to Value Your Company

When a business has a steady customer base, it’s easy for it to make estimations and projections. But that task is very difficult for companies that are non-contractual, meaning they have customers with inconsistent buying patterns. Wharton marketing professor Peter Fader and Wharton doctoral student Dan McCarthy are looking to close the data gap in their new research paper titled, “Valuing Non-Contractual Firms Using Common … [ Read more ]

Be Your Own Activist Investor

With these 10 principles for rethinking cost management, you can maximize value and avoid threats from Wall Street.

Top Excel Tips For Data Analysts

Data and business go hand in hand. And whether you’re analyzing a client’s data or using your company’s data to make executive decisions, your tools have to be able to handle the tasks you perform with that information.

If you’re a data analyst, most of the time you go through these stages of data analysis:
– Data Cleaning: Transform and rearrange the data in a way suitable … [ Read more ]