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Either click here to review your order or continue to add content from another title.    Time for Investors to Get Social   Add   View  4 pp.  Article Author(s): Teten, David; Farmer, Chris Publication Date: 06/01/2010 Product Type: Harvard Business Review Article Publisher: Harvard Business School Publishing HBS Number: F1006C Subjects: Transparency; Social media Academic Discipline: Finance Product Description: Private equity and venture capital firms are starting to share details about their investment strategy in public forums like social media-and it's paying off.    The VC Shakeout   Add   View  8 pp.  Article Author(s): Ghalbouni, Joseph; Rouzies, Dominique Publication Date: 07/01/2010 Product Type: Harvard Business Review Article Publisher: Harvard Business School Publishing HBS Number: F1007A Subjects: Venture capital Academic Discipline: Finance Product Description: To regain its strength, venture capital must return to its roots.    Is It Fair to Blame Fair Value Accounting for the Financial Crisis?   Add   View  16 pp.  Article Author(s): Pozen, Robert C. Publication Date: 11/01/2009 Product Type: Harvard Business Review Article Publisher: Harvard Business School Publishing HBS Number: R0911G Subjects: Crisis management; Accounting procedures; Financial analysis; Accounting standards; Assets Academic Discipline: Finance Product Description: When the credit markets seized up in 2008, many heaped blame on “mark to market” accounting rules, which require banks to write down their troubled assets to the prices they'd fetch if sold on the open market - at the time, next to nothing. Recording those assets below their “true” value, critics argued, drove financial institutions toward insolvency. Proponents of marking to market, on the other hand, said it exposed executives' bad decisions. If not for this fair value accounting practice, investors would be kept in the dark about the banks' real state of affairs. In this article, Pozen, the chairman of MFS Investment Management, dispels the myths about fair value accounting. For example, it's untrue that most bank assets are marked to market - in 2008 just a third were. Not all write-downs reduce the banks' regulatory capital. Nor is it true that under historical cost accounting, companies don't have to acknowledge changes in market value; they're required to record permanent impairments to assets. After explaining the controversy, Pozen proposes a solution: new, transparent practices that would draw on the best of both historical cost and fair value accounting. If adopted, they could balance the banks' desire to present assets in a good light with investors' need to understand the banks' exposures - and perhaps make everyone happy.    Acquisitions: The Process Can Be a Problem   Add   View  12 pp.  Article Jemison, David B.; Sitkin, Sim B. Acquisitions continue to be an important method of strategic redirection and renewal. But many companies experience disappointing results. Research suggests that an important source of success and failure in acquisitions lies in three factors: the involvement of specialists and analysts with independent goals and multiple, fragmented views of the agreement; premature closure and limited consideration of integration issues; and an inability to resolve important areas of ambiguity before an agreement is completed. HBS Number: 86203 Type: Harvard Business Review Article Publication Date: 3/1/1986 Subjects: Acquisitions; Corporate strategy    An Insider’s Call for Outside Direction   Add   View  8 pp.  Article Johnson, Elmer W. The large public corporation depends on patient capital, which depends on conscientious boards of directors. Unfortunately, prosperity has allowed boards to grow complacent. Explosive developments in information technology, flexible manufacturing, global markets, workplace democracy, and pension-fund capitalism have shaken the corporate world. A variety of measures can be used to reinvigorate corporate boards, reduce their fear of fiduciary liability in the investment of pension-fund monies, and encourage pension-fund investors to take a more active role in the direction of the companies whose stock they own. HBS Number: 90206 Type: Harvard Business Review Article Publication Date: 3/1/1990 Subjects: Capital markets; Corporate responsibility; Information technology; Management of change; Pension funds; Public sector; Stockholders    Are Your Paying Too Much for That Acquisition?   Added   View  12 pp.  Article Eccles, Robert G.; Lanes, Kersten L.; Wilson, Thomas C. Despite 30 years of evidence demonstrating that most acquisitions don't create value for the acquiring company, executives continue to make more deals, and bigger deals, every year. There are plenty of reasons why value isn't created, HBS Number: 99402 Type: Harvard Business Review Article Publication Date: 7/1/1999 Subjects: Acquisitions; Corporate governance; Financial strategy; Pricing strategy; Valuation    Avoid Merger Meltdown: Lessons from Mergers and Acquisitions Leaders   Add   View  5 pp.  Article Author(s): Harding, David; Rovit, Sam; Corbett, Alistair Publication Date: 09/15/2004 Product Type: Strategy & Innovation Article HBS Number: S0409C Subjects: Acquisitions; Innovation; Mergers; Models; Organizational behavior; Risk management; Strategy implementation Academic Discipline: Finance Product Description: No matter how compelling the business case, acquisitions inevitably run into difficulties. Key people leave, processes break down, information systems get tangled, and customers grouse. Most company leaders are blindsided by these impediments — they've focused so hard on nailing down the terms of their deals and hashing out broad integration plans that they've given short shrift to spotting specific problems. The most successful acquirers, however, don't ignore any of the details. Whether problems are manageable or cataclysmic, these acquirers have strong early-warning systems in place to identify them, and they respond to even the faintest distress signals without delay. Their approach can provide a valuable model for any company considering — or surviving — a merger.    Barbarians in the Boardroom   Add   View  11 pp.  Article Anders, George The corporate raiders of the 1980s have turned into corporate boardmembers of the 1990s. In this new role, the takeover experts are not plunderers, nor are they creating quick profit at the expense of companies' long-term health; rather, they are defying expectations and, in a number of important respects, successfully implementing the agenda of the gurus of good management. Setting the pace in this new arena is the leveraged buyout firm of Kohlberg Kravis Roberts & Co. KKR's partners hold board seats at nine different companies with $1 billion a year or more in sales. KKR is practicing a surprising amount of what might be regarded as a textbook version of sound management methods--including rigorously evaluating CEO performance, devising proper management incentives, and making budgets count. HBS Number: 92401 Type: Harvard Business Review Article Publication Date: 7/1/1992 Subjects: Board of directors; Corporate governance; Financial management; Leveraged buyouts    Better Way to Manage Risk   Add   View  4 pp.  Article Author(s): Meulbroek, Lisa Publication Date: 02/01/2001 Product Type: Harvard Business Review Article Product Description: Through an innovative new policy forged with a single insurer, Honeywell is consolidating risks as diverse as fire protection and currency fluctuations--and saving a bundle. HBS Number: F0102B Subjects: Financial management; Insurance; Risk management Academic Discipline: Finance    Capital Budgeting: Discounted Cash Flow Analysis   Add   View  6 pp.  Article Piper, Thomas R. Comprises seven problems that collectively allow students to work through each type of cash flow that is encountered in capital budgeting. The instructor can also address such issues as product cannibalization and real options. Teaching Purpose: An effective introduction to capital budgeting. HBS Number: 9-298-068 Type: Exercise Publication Date: 10/30/1997 Revision Date: 6/28/2000 Subjects: Capital budgeting; Cash flow    Capital Markets and Competitive Decline   Add   View  15 pp.  Article Ellsworth, Richard R. In seeking reasons for the United States' competitive decline in the world marketplace, critics often blame U.S. management policies. This look at a broader picture in seeking causes and remedies explores ways in which capital markets color the choices management can make. Serious questions are raised about the contribution our country's capital market conventions have made to our industrial malaise. Business and government leaders must rethink the financial policies they have heretofore accepted as givens. HBS Number: 85506 Type: Harvard Business Review Article Publication Date: 9/1/1985 Subjects: Capital markets; Competition; Economic policy; International business    Case Against ROI Control   Add   View  12 pp.  Article Dearden, John Return on investment (ROI), as a measure of division contribution to profits in decentralized companies, is of limited use. ROI is too simple a model for a complex process, especially when different profit objectives and types of fixed assets exist. ROI application problems include: setting proper annual profit objectives, assigning responsibility for deviation, and measuring accounted profit in a short period of time. Increased familiarity with division operations and more realistic profit objectives and time span evaluations are needed. Recentralization is an inappropriate alternative for ROI, and correction of the technical drawbacks and implementation constraints of ROI procedures is necessary pending further improvements for new research. HBS Number: 69304 Type: Harvard Business Review Article Publication Date: 5/1/1969 Subjects: Decentralization; Return on investment    Case of the Expensive Expansion   Add   View  8 pp.  Article Willigan, Geraldine E. In 1988 Playto Industries' Teach-Her doll, the company's first new product since Jim Clayton became president, was a winner in the East. Clayton planned to take Teach-Her national and to introduce another toy, Playto's Labs. But he needed $30 million--almost as much as the company's existing capitalization--to grow. Monument National Bank would lend no more than $20 million. The best option seemed to be subordinated bonds. Rates were high, but if Playto made the bonds convertible, rates fell from 12.5% to a more manageable 8.75%. Now Clayton has a knot in his stomach: interest coverage might drop to half of that in 1988, a competitor might imitate Teach-Her, Playto's Labs might flop--the company could end up in serious trouble. Five finance experts discuss the case. HBS Number: 89112 Type: Harvard Business Review Article Publication Date: 1/1/1989 Subjects: Capital investments; Expansion; Financial management; Growth strategy; HBR Case Discussions    CFOs and Strategists: Forging a Common Framework   Add   View  8 pp.  Article Rappaport, Alfred Establishing competitive advantage and creating shareholder value both stem from a common economic framework. The stock market values the long-term productivity of companies. It is not necessary to depart from the shareholder-value model to improve a company's competitive position. Maximum returns for current shareholders will materialize only when managers maximize long-term shareholder value and deliver interim results that attest credibly to sustainable competitive advantage. HBS Number: 92309 Type: Harvard Business Review Article Publication Date: 5/1/1992 Subjects: Financial management; Long term planning; Productivity; Stockholders    Choosing Compatible Acquisitions   Add   View  12 pp.  Article Salter, Malcolm S.; Weinhold, Wolf A. Formal guidelines help companies identify and screen acquisition candidates. Two examples illustrate how the process of developing acquisition guidelines differs in focus and content between related diversifications and unrelated diversifications. In both cases, acquisition guidelines relate closely to corporate strategy. The screening process also provides a critical analysis of differences of opinion and improves the consistency between corporate objectives and resources. The procedure's final step involves comparing the candidate's potential for value creation to the cost of the acquisition as well as to the company's other investment opportunities. HBS Number: 81109 Type: Harvard Business Review Article Publication Date: 1/1/1981 Subjects: Acquisitions; Corporate strategy    Choosing Equity Stakes in Technology Sourcing Relationships   Add   View  25 pp.  Article Author(s): Kale, Prashant; Puranam, Phanish Publication Date: 05/01/2004 Product Type: CMR Article Publisher: California Management Review Product Description: Although there has been an explosion in the number of technology sourcing relationships between firms -- including alliances, acquisitions, and all intermediate levels of equity ownership -- managers lack a comprehensive framework to guide them in equity ownership decisions meant to access technology. Higher levels of equity ownership can provide benefits such as exclusive access to and control over critical resources, alignment of interests between partners, and better coordination and control of partner interaction. On the other hand, equity ownership also entails costs associated with implementing changes to organizational structures, in addition to lower employee motivation as well as commitment costs due to market or technological uncertainty. HBS Number: CMR285 Subjects: Acquisitions; Equity capital; Sourcing; Technology transfer Academic Discipline: Finance    Chrysler Group Comes Back: Using the BSC to Drive a Turnaround   Add   View  5 pp.  Article Author(s): Johnson, Lauren Keller Publication Date: 09/15/2002 Product Type: Balanced Scorecard Report Article Product Description: The Chrysler Group (CG) was once a leader in bold, expressive automotive design, but saw its fortunes sputter in the late 90s caused by a slow economy, fierce competition, and rising internal costs. The company's merger with Daimler-Benz made matters worse, and within three years, the financial results were dismal. The Chrysler Group, one of DaimlerChrysler's five units, knew it needed a speedy turnaround. The company implemented the Balanced Scorecard in March 2001, and as of the second quarter this year, CG was on the rebound. HBS Number: B0209B Subjects: Automobile industry; Balanced scorecard; Corporate strategy; Economic conditions; Organizational change; Strategy formulation; Strategy implementation Academic Discipline: Finance    Collaborating with Congregations: Opportunities for Financial Services in the In   Add   View  12 pp.  Article Fondation, Larry; Tufano, Peter; Walker, Patricia In all economies, financial systems perform a basic set of functions, which include the need to pool resources, to save and borrow, to make payments, and to collect information. And yet, in rich and poor communities, the ways in which HBS Number: 99404 Type: Harvard Business Review Article Publication Date: 7/1/1999 Subjects: Business & society; Credit; Financial services; Insurance; Investment management; Personal finance; Social change; Urban development    Conflicting Roles in Budgeting for Operations   Add   View  10 pp.  Article Barrett, M. Edgar; Fraser, Leroy B., III Operational budgets usually consist of a projected income statement and a series of supporting statements, such as budgeted sales, production costs and levels, and selling expenses. Budgets play five roles. Three are major roles: plann HBS Number: 77403 Type: Harvard Business Review Article Publication Date: 7/1/1977 Subjects: Budgeting; Conflict    Corporate Financial Management: Options Exercises   Add   View  5 pp.  Article Luehrman, Timothy A. Presents four exercises designed to introduce students to applications of option pricing and decision-tree analysis to real corporate investment problems. Two of the four problems involve decision trees and two involve option pricing. Students should be familiar with basic option pricing theory (Black-Scholes and/or the Binomial Model) before being assigned these exercises. Teaching Purpose: Intended to develop student's abilities to formulate and analyze corporate capital investment projects as options or portfolios of options. HBS Number: 9-293-095 Type: Exercise Publication Date: 2/9/1993 Revision Date: 12/8/1994 Subjects: Capital budgeting; Decision theory; Decision trees; Financial strategy; Option pricing; Pricing; Valuation Supplementary Materials: Teaching Note, (5-295-117), 11p, by Timothy A. Luehrman   Add     10 pp.  Teaching Note For use with 9-293-095 HBS Number: 5-295-117 Subjects: Capital budgeting; Decision theory; Decision trees; Financial strategy; Option pricing; Pricing; Valuation    Corporate Raiders: Head’em Off at Value Gap   Add   View  9 pp.  Article Fruhan, William E., Jr. Capital markets now demand that CEOs monitor the "value gap" between what their company's shareholders realize now and what they might be able to get. As the pool of available funds grows and the number of easy targets declines, acquirers will turn their attention to companies with smaller and smaller value gaps. CEOs must measure the value gap and track it periodically. To manage the gap, CEOs can choose one or more of three basic options: improve operations, leverage the company's capital structure, or sell business units to the "best buyers." HBS Number: 88404 Type: Harvard Business Review Article Publication Date: 7/1/1988 Subjects: Acquisitions; Corporate strategy; Interest groups; Securities; Stockholders; Valuation    Crafting a JV Prenup   Add   View  4 pp.  Article Author(s): Crovitz, L. Gordon Publication Date: 11/01/2004 Product Type: Harvard Business Review Article Product Description: L. Gordon Crovitz of Dow Jones describes how his company and Reuters successfully launched Factiva. HBS Number: F0411K Subjects: Alliances; Joint ventures; Partnerships Academic Discipline: Finance    Crime? Greed? Big Ideas? What Were the 80’s About?   Add   View  12 pp.  Article Taylor, William The takeover battles of the 1980s have given way to a battle over their meaning and legacy. On one side are critics who argue that the events of the 1980s are best understood as episodes in the greatest criminal conspiracy Wall Street has ever known. On the other side are advocates of the new finance for whom the decade represents a triumph of financial innovation. HBS Number: 92110 Type: Harvard Business Review Article Publication Date: 1/1/1992 Subjects: Acquisitions; Business policy; Ethics; Legal aspects of business; Leveraged buyouts    Deals Without Delusions   Add   View  16 pp.  Article Author(s): Lovallo, Dan; Viguerie, Patrick; Uhlaner, Robert; Horn, John Publication Date: 12/01/2007 Product Type: Harvard Business Review Article HBS Number: R0712G Subjects: Biases; Mergers & Acquisitions Academic Discipline: Finance Product Description: Pursuing a merger or acquisition is inherently difficult. Things get even harder when executives are blind to their own faulty assumptions, say Lovallo — a professor at the University of Western Australia Business School and a senior adviser to McKinsey — and three of his McKinsey colleagues. The authors identify biases that can surface at each step of the M&A process and provide practical tips for rising above them — an approach they call targeted debiasing. During the preliminary due-diligence stage, biases abound. To overcome the confirmation bias, aggressively seek evidence that challenges your initial hypothesis about a deal. The best medicine for overconfidence in identifying revenue and cost synergies is to learn from precedents at your firm and others. Avoiding underestimation of cultural differences between your company and the target requires understanding the differences in the ways people interact at each organization. Misjudging the time and resources you need is at the core of the planning fallacy, which you can elude by formally identifying best practices and continually revisiting them. Finally, dilute conflict of interest by soliciting dispassionate external expertise. The bidding phase is vulnerable to the winner's curse, a phenomenon common in auctions. To avoid paying too much for a target, actively generate alternatives to the deal under consideration and develop a set of bidding cutoff rules. After offering an initial bid, deal makers are susceptible to anchoring, whereby they remain attached to their original price estimate, and to the sunk cost fallacy that they've invested too much to stop now. The secret to    Dining at the Earnings Buffet   Add   View  7 pp.  Article Author(s): Moehrle, Stephen R.; Moehrle-Reynolds, Jennifer A.; Wallace, James S. Publication Date: 07/15/2003 Product Type: Business Horizons Article Publisher: Business Horizons/Indiana University Product Description: Many companies voluntarily report the information content of alternative performance measures--such as earnings before interest, taxes, depreciation, and amortization (EBITDA). Examines the degree to which the individual measures are related to stock returns. Tests the S&P 1500 firms both overall and as partitioned by size as well as subsets of firm-year observations for which measures such as EBITDA are expected to be more valuation relevant. Uncovers circumstances in which this is the case, but the valuation relevance never exceeds that of net income. HBS Number: BH093 Subjects: Accounting; Accounting procedures; Financial analysis; Financial management; Performance measurement; Stocks; Valuation Academic Discipline: Finance    Do Your Business Units Create Shareholder Value?   Add   View  8 pp.  Article Arzac, Enrique R. Over the long term the stock market responds rationally to the adoption of business strategies that change the level and quality of a company's future cash flows. The stock market usually processes available strategic information efficiently. It is at the business unit level that value is ultimately created or destroyed. To evaluate the performance of business units and the impact of strategic decisions on them, complement your own good judgment and creativity with the four steps described here. HBS Number: 86101 Type: Harvard Business Review Article Publication Date: 1/1/1986 Subjects: Return on investment; Securities markets; Strategic planning; Valuation    Does the Capital Asset Pricing Model Work?   Add   View  11 pp.  Article Mullins, David W., Jr. The capital asset pricing model (CAPM) is a theoretical representation of the way financial markets behave. It can be used to estimate a company's cost of equity capital in investment management decisions. Managers can also use CAPM to calculate divisional hurdle rates and risks of acquisitions. CAPM is based on specialized assumptions including frictionless markets without imperfections, such as transaction costs, taxes and restrictions on borrowing and short selling. It requires limiting assumptions concerning the statistical nature of securities' returns and investors' preferences, and it assumes investors' agreements on likely performance and risk of securities. HBS Number: 82106 Type: Harvard Business Review Article Publication Date: 1/1/1982 Subjects: Capital markets; Financial analysis    Early Returns on LBOs   Add   View  10 pp.  Article Kitching, John Little reliable data is available on the structure and performance of leveraged buyouts. This statistical analysis of 320 deals in the United States and Great Britain offers some intriguing insights into the LBO phenomenon. For example, managers contribute only 3% of the cost of buyouts, but control 30% of the initial ownership; LBOs make impressive efficiency gains, but often fail to meet pre-buyout forecasts; and owners are cashing out more quickly than planned. HBS Number: 89607 Type: Harvard Business Review Article Publication Date: 11/1/1989 Subjects: Acquisitions; Corporate strategy; Financial management; Leveraged buyouts    Eclipse of the Public Corporation   Added   View  15 pp.  Article Jensen, Michael C. The publicly held corporation has outlived its usefulness in many sectors of the economy. New organizations are emerging. Takeovers, leveraged buyouts, and other going-private transactions are manifestations of the change. A central source of waste in the public corporation is the conflict between owners and managers over free cash flow. This conflict helps explain the prominent role of debt in the new organizations. The new organizations' resolution of the conflict explains how they can motivate people and manage resources more effectively than public corporations. McKinsey Award Winner. HBS Number: 89504 Type: Harvard Business Review Article Publication Date: 9/1/1989 Subjects: McKinsey Award Winners; Public sector    Efficient Markets, Deficient Governance   Add   View  16 pp.  Article Bhide, Amar V. The United States has the best stock markets in the world, many people believe. And the SEC works hard to keep them that way. The U.S. markets are the broadest and fairest anywhere. The average American can trade with little fear of ri HBS Number: 94602 Type: Harvard Business Review Article Publication Date: 11/1/1994 Subjects: Corporate governance; Federal government; Regulation; Securities markets; Stockholders    Efficient? Chaotic? What’s the New Finance?   Add   View  8 pp.  Article Nichols, Nancy A. Day after day, CFOs and investors alike make decisions based on the principles of modern financial theory. Developed in the decades after World War II, these theories began as isolated academic concepts. Today they shape our corporations. Now the thinking is changing. As a result of the increasing globalization of the markets and the increased technological firepower of its participants, there is both a pragmatic and philosophical attack being waged against both the efficient market hypothesis and the capital asset pricing model. As such, the benchmarks and yardsticks that used to matter to managers--such as the well-known measure of stock price volatility, beta, and the ubiquitous credit rating--are now in question. There are, however, only the sketchy outlines of the new philosophies and practices that might eventually become post-modern theory. HBS Number: 93208 Type: Harvard Business Review Article Publication Date: 3/1/1993 Subjects: Economic analysis; Efficient markets; Game theory; Quantitative analysis; Securities analysis; Securities markets    Exempt Offerings: Going Public Privately   Add   View  11 pp.  Article Arnold, Jerry L. Instead of borrowing or going public to get the funds to finance expansion, growing companies can now qualify for exempt offerings, which allow them to sell their securities to small groups of qualified investors. The Small Business Incentive Act of 1980 has expanded the exemptions available, and the SEC has adopted Reg D, which establishes specific types of exemption. The states' role in exemption is just as important as the federal government's. HBS Number: 85101 Type: Harvard Business Review Article Publication Date: 1/1/1985 Subjects: Economic policy; Entrepreneurial finance; Entrepreneurship; Securities; Small business; Stock offerings    Financial Goals and Strategic Consequences   Add   View  12 pp.  Article Donaldson, Gordon A study of 12 mature industrial companies shows that managing a financial goals system is a complex process in which competing and conflicting goals must be balanced. Once a company recognizes that its goals are interdependent and that trade-offs among them are necessary, it tends to emphasize market priorities in order to preserve its standing in the industry. In selecting its company's financial objectives, management should specify realistic time horizons for achievement, ensure that all primary goals are consistent with one another, and account for changing economic and competitive conditions. HBS Number: 85306 Type: Harvard Business Review Article Publication Date: 5/1/1985 Subjects: Financial management; Financial strategy; Goal setting    Fixing the Pension Fund Mix   Add   View  4 pp.  Article Author(s): Pozen, Robert C. Publication Date: 03/01/2004 Product Type: Harvard Business Review Article Product Description: Wise allocation of assets across both stocks and bonds can help companies reap higher returns from an asset mix that includes equities without assuming unacceptable risk. HBS Number: F0403E Subjects: Asset allocation; Assets; Bonds; Pension plans; Risk management; Stocks Academic Discipline: Finance    Flaw in Customer Lifetime Value   Add   View  4 pp.  Article Author(s): Schoder, Detlef Publication Date: 12/01/2007 Product Type: Harvard Business Review Article HBS Number: F0712J Subjects: Consumers; Market analysis; Research methodology Academic Discipline: Finance Product Description: Marketers commonly estimate customer lifetime value in order to decide which customers are worth continued investment. But the way companies typically calculate that value is flawed because it overlooks the real option of abandoning unprofitable customers.    Framework for Financial Decisions   Add   View  14 pp.  Article Sihler, William W. Leading ideas and theories regarding capital structure and capital assets are translated into a useable form for managers. The suggested framework for analysis concentrates on three areas related to preliminary investment decisions: tentative investment level and estimates of cash flow and earnings; the debt/equity structure or amount of debt to be carried; and dividend policy. Investment decisions influence capital cost which in turn influences investment volume. HBS Number: 71211 Type: Harvard Business Review Article Publication Date: 3/1/1971 Subjects: Capital costs; Financial management; Investment management; Securities analysis    Free Cash Flow Valuation Problem Set   Add   View  7 pp.  Article Sahlman, William A.; Janower, Andrew Free cash flow valuation problems: 1) build a simple pro forma, 2) value a public company's stock, and 3) evaluate a proposed LBO. Teaching Purpose: To help students gain familiarity with practical applications of free cash flow valuation techniques. HBS Number: 9-396-269 Type: Exercise Publication Date: 2/13/1996 Subjects: Cash flow; Leveraged buyouts; Venture capital    Fundamental Laws of Business   Add   View  5 pp.  Article Author(s): Stauffer, David Publication Date: 04/01/2001 Product Type: Harvard Management Update Article Product Description: Many general managers would rather have a root canal than learn about finance. However, an understanding of a few financial measures, coupled with an enterprise-wide perspective, can help managers get a grip on their company. Here, some of the experts show how understanding the monetary intake of a company by using its growth, cash generation, and return on assets can help counteract the managerial tendency to think only within one's department or unit. HBS Number: U0104A Subjects: Asset management; Cash flow; Financial management; Growth management Academic Discipline: Finance    Getting a Grip on Intangible Assets   Add   View  4 pp.  Article Publication Date: 02/01/2001 Product Type: Harvard Management Update Article Product Description: In 2000, Microsoft reported revenues of $22.9 billion and its market capitalization topped $423 billion--a sizable gap between real and ethereal figures. Experts attribute this huge disparity to "intangible assets," whose value has become, on average, three times greater than that of physical assets like equipment and buildings. While use of the phrase has become widespread, few people understand what it really encompasses. This article looks at who should manage a company's intangibles and how. Includes the sidebar, "Managing Your Intangible Assets: Lessons from the Patent Pros." HBS Number: U0102C Subjects: Accounting; Asset management; Intangible assets; Intellectual capital Academic Discipline: Finance    Growth Through Acquisitions: A Fresh Look   Add   View  12 pp.  Article Anslinger, Patricia L.; Copeland, Thomas E. Many companies today find themselves with a surplus of cash and a shortage of places to use it. In the past five years, more than 1,300 companies have stashed upwards of $150 billion into their coffers. Yet when CEOs look for ways to spend that cash, they find few options. This litany, however, precludes one important option--nonsynergistic acquisitions. A new study by McKinsey consultants Patricia L. Anslinger and Thomas E. Copeland has found that companies can pursue nonsynergistic deals profitably. In fact, their yearlong research has uncovered a diverse group of organizations, including Thermo Electron, Sara Lee, and Clayton, Dublier & Rice, that have grown dramatically and captured sustained returns of 18% to 35% per year by making nonsynergistic acquisitions. HBS Number: 96101 Type: Harvard Business Review Article Publication Date: 1/1/1996 Subjects: Acquisitions; Strategic planning    How Fast Can Your Company Afford to Grow?   Add   View  12 pp.  Article Author(s): Churchill, Neil C.; Mullins, John W. Publication Date: 05/01/2001 Product Type: Harvard Business Review Article Product Description: Everyone knows that starting a business requires cash, and growing a business requires even more. But few people understand that a profitable company that tries to grow too fast can run out of cash even if its products are great successes. So a big challenge for managers of any growing concern is to strike the proper balance between consuming cash and generating it. Authors Neil Churchill and John Mullins offer a framework to help identify and manage the level of growth that a company's cash flow can support. They present a formula to calculate an organization's self-financeable growth (SFG) rate, taking into account three critical factors: a company's operating cash cycle--the amount of time the company's money is tied up in inventory and other current assets before customers pay for goods and services; the amount of cash needed to finance each dollar of sales; and the amount of cash generated by each dollar of sales. The authors offer a detailed hypothetical example that carefully considers these three factors; they then illustrate how a company can influence its SFG rate by carefully managing some combination of those factors. HBS Number: R0105K Subjects: Asset management; Cash management; Financial strategy; Growth management; Growth strategy Academic Discipline: Finance    How Fast Should Your Company Grow?   Add   View  11 pp.  Article Fruhan, William E., Jr. Examination of the interaction among inflation, capital costs, profitability, growth, and the market value of a company's common stock can determine whether growth adds value for a company's shareholders. Analysis of the expected excess returns, figured on a net present value basis, of Tandy Corp., Xerox, and National Steel illustrates how the gap between market and book value of common stock can widen and illustrates that growth will add value if ROE is expected to exceed the cost of equity capital. But inadequate profitability coupled with the need to finance inflation-induced sales growth can be disastrous for the company's valuation. HBS Number: 84108 Type: Harvard Business Review Article Publication Date: 1/1/1984 Subjects: Profitability analysis; Valuation    How Financial Engineering Can Advance Corporate Strategy   Add   View  12 pp.  Article Tufano, Peter Practitioners of a new technical specialty--financial engineering--can help senior managers achieve their objectives. Financial engineering can not only reduce the cost of existing activities but also make possible the development of new products, services, and markets. Peter Tufano presents five case studies that illustrate innovative applications of financial engineering and help managers determine when such techniques are appropriate. HBS Number: 96112 Type: Harvard Business Review Article Publication Date: 1/1/1996 Subjects: Derivatives; Financial strategy; Risk management; Strategy implementation    How I Learned to Live with Wall Street   Add   View  7 pp.  Article Qureshey, Safi U. When the author, who is cochairman, CEO, and president of AST Research, first started the company with two partners, he developed the habit of relying on the stock price to tell him how AST was performing. This worked well when the stock rose, but once it began to fall, company morale fell also. AST is now a respected player in the personal computer market, and the author has learned to keep what Wall Street says in perspective. HBS Number: 91309 Type: Harvard Business Review Article Publication Date: 5/1/1991 Subjects: Computer industry; Financial management; Performance measurement; Securities markets    How Much Debt Is Right for Your Company?   Added   View  10 pp.  Article Piper, Thomas R.; Weinhold, Wolf A. A review of two decades of research shows that debt financing has a far lower payoff than many chief financial officers (CFOs) believe. CFOs determine a sensible debt policy that is in line with corporate strategy by following a recommended policy that considers: a company's particular financing needs; the lending criteria of target sources of capital; the implications of debt policy on strategy, competition, and shareholders; and the ease of implementation. Each CFO should determine the limit of debt's payoffs to the company and should recognize what conditions might push him or her to exceed that limit. Formulation of a solid plan ensures a steady flow of capital and secures top management's commitment to such a plan. HBS Number: 82413 Type: Harvard Business Review Article Publication Date: 7/1/1982 Subjects: Debt management; Financial management    How Much Money Does Your New Venture Need?   Add   View  14 pp.  Article Stancill, James McNeill Entrepreneurs should compile a financial forecast that includes three elements: an income statement, a balance sheet, and a cash flow statement. Forecasts should look ahead five years and include three scenarios: a most likely, a most pessimistic, and a most optimistic. Key estimates for putting the income statement together are sales, costs of goods sold, general and administrative expenses, and selling expenses. Key estimates needed for the balance sheet are accounts receivable, inventory, and the debt-equity ratio. These estimates enable one to complete the cash flow statement. HBS Number: 86314 Type: Harvard Business Review Article Publication Date: 5/1/1986 Subjects: Entrepreneurial finance; Forecasting; Small business; Venture capital    How Real Options Theory Can Improve Your Decision Making   Add   View  4 pp.  Article Publication Date: 01/01/2001 Product Type: Harvard Management Update Article Product Description: Enron Corp. of Houston built three new power plants in 1999. Though cheaper than the typical modern plant, they were also far less efficient. Enron planned to fire up those plants only when electricity prices in the Midwest reached a certain level. How could Enron justify a strategy that flies in the face of traditional financial analysis? The answer is real options, a means of quantifying the value of business opportunities that are shrouded in uncertainty. HBS Number: U0101C Subjects: Financial analysis; Intangible assets; Real options; Risk assessment; Strategic planning; Valuation Academic Discipline: Finance    How to Negotiate a Term Loan   Add   View  10 pp.  Article Arnold, Jasper H., III The loan negotiation process between bankers and company managers is not always skewed in the banker's favor. Success depends on negotiating strategy. Managers need to learn to think like the banker and identify the bank's objectives in making the loan, meet those objectives with the least damage to their company's position, order the restrictive covenants by priority so they can give in on one or two without hindering the company's overall objectives, and influence the banker to relax or withdraw noncrucial restrictions. HBS Number: 82201 Type: Harvard Business Review Article Publication Date: 3/1/1982 Subjects: Corporate strategy; Financial management; Financing; Negotiations    How to Talk to Investors — Through the Press   Add   View  4 pp.  Article Author(s): Miller, Gregory S. Publication Date: 01/01/2008 Product Type: Harvard Business Review Article HBS Number: F0801K Subjects: Business press; Communication strategy; Media relations Academic Discipline: Finance Product Description: If you're seeking attention from investors and analysts, the press can be a convenient megaphone. Cultivating relationships with the media takes patience, but the payoffs in both good times and bad are priceless.    How Venture Capital Works   Added   View  12 pp.  Article Zider, Bob In this article, Bob Zider, president of the Beta Group, a California-based firm that invests in commercializing new technologies, presents an analysis of present-day venture capitalists and shows why its practitioners have a lot more HBS Number: 98611 Type: Harvard Business Review Article Publication Date: 11/1/1998 Subjects: Entrepreneurial finance; Entrepreneurship; Equity financing; Investment banking; Stock offerings; Venture capital    Institutional Investors: The Reluctant Activists   Add   View  12 pp.  Article Pozen, Robert C. Institutional investors, who now own a majority of the voting stock of publicly traded U.S. companies, have an influence on the way these companies are run. And given their influence, institutions are under increasing pressure to becom HBS Number: 94111 Type: Harvard Business Review Article Publication Date: 1/1/1994 Subjects: Board of directors; Corporate governance; Cost benefit analysis; Investment management; Securities; Stockholders    Investment Analysis Exercises   Add   View  4 pp.  Article Author(s): Crane, Dwight B.; Joseph, Penny Publication Date: 02/04/1999 Revision Date: 03/12/1999 Product Type: Exercise HBS Number: 9-299-049 Subjects: Financial analysis; Present value Academic Discipline: Finance Product Description: To teach present value analysis.    Investment Opportunities as Real Options: Getting Started on the Numbers   Add   View  16 pp.  Article Luehrman, Timothy A. In this article, Timothy A. Luehrman, professor of finance at Thunderbird, The American Graduate School of International Management, presents a framework that can bridge the gap between the practicalities of real-world capital projects HBS Number: 98404 Type: Harvard Business Review Article Publication Date: 7/1/1998 Subjects: Capital investments; Financial instruments; Option pricing; Options; Real options    Investment Policies That Pay Off   Add   View  13 pp.  Article Hertz, David B. Capital investment decisions are usually gambles based on little empirical information. An analysis of risk-based profiles determines which factors influence future costs and revenues and weighs them to develop an uncertainty profile. Each variable's estimates are placed on a probability distribution curve. A company's simulation reveals the range of possible outcomes for the individual criteria, such as ROI and payback. The simulation is a useful way for management to evaluate past investments and select new ones. HBS Number: 68107 Type: Harvard Business Review Article Publication Date: 1/1/1968 Subjects: Capital investments; Models; Return on investment; Securities analysis    Is a Share Buyback Right for Your Company?   Add   View  12 pp.  Article Author(s): Pettit, Justin Publication Date: 04/01/2001 Product Type: Harvard Business Review Article HBS Number: R0104K Subjects: Capital markets; Capital structure; Dividends; Equity financing; Financial strategy; Stocks Academic Discipline: Finance Product Description: Contrary to popular wisdom, buybacks don't create value by raising earnings per share. But they do indeed create value, and in two very different ways. First, a buyback sends signals about the company's prospects to the market — hopefully, that prospects are so good that the best investment managers can make right now is in their own company. But investors won't see it that way if other, negative, signals are coming from the company, and it's rarely a good idea for companies in high-growth industries, where investors expect that money to be spent pursuing new opportunities. Second, when financed as a debt issue, a buyback is essentially an exchange of equity for debt, conferring the traditional benefits of leverage — a tax shield and a discipline for managers. For such a buyback to make sense, a company would need to have taxable profits in need of shielding, of course, and be able to predict its future cash flows fairly accurately. Justin Pettit has found that managers routinely underestimate how many shares they need to buy to send a credible signal to the markets, and he offers a way to calculate that number. He also goes through the iterative steps involved in working out how many shares must be purchased to reach a target level of debt. Then he takes a look at the advantages and disadvantages of the three most common ways that companies make the actual purchases — open-market purchases, fixed-price tender offers, and auction-based tender offers. When a company's performance is lagging, a share buyback can look attractive. Unfortunately, a buyback can backfire — unless executives understand why, when, and how    Is Your Stock Worth Its Market Price?   Add   View  10 pp.  Article Piper, Thomas R.; Fruhan, William E., Jr. Corporate financial officers (CFOs) who successfully second-guess stock market analysts observe three requirements: they avoid the trap of equating a low price-earnings multiple with evidence of undervaluation; they monitor the leading analysts' perceptions for significant variations from company forecasts; and they translate these forecasts into estimates of economic value. The recommended dividend valuation model uses as its basis a company's fundamental detriments of value, including its prospects for profitability and its long-run investment opportunities. While companies can profit by outguessing the market, corporate management should assume the correctness of market prices unless disproven by the CFO's thorough, fundamental valuation. HBS Number: 81309 Type: Harvard Business Review Article Publication Date: 5/1/1981 Subjects: Securities markets; Valuation    Learn to Speak the Language of ROI   Add   View  5 pp.  Article Author(s): O'Leary, John Publication Date: 10/01/2002 Product Type: Harvard Management Update Article Product Description: Nobody is getting approval to spend money these days unless he or she can demonstrate an economic return for the company. So now, nonfinancial professionals are having to master the mysterious language of return on investment (ROI). Read our expert advice and learn all you need to know about the basics of ROI. HBS Number: U0210C Subjects: Breakeven analysis; Cash flow; Financial analysis; Financial strategy; Managers; Project finance; Rates of return; Return on investment Academic Discipline: Finance    Lessons from Master Acquirers: A CEO Roundtable on Making Mergers Succeed   Carey, Dennis The announcement in January of the merger between America Online and Time Warner marked the convergence of the two most important business trends of the last five years—the rise of the Internet and the resurgence of mergers and acquis HBS Number: R00312 Type: Harvard Business Review Article Publication Date: 5/1/2000 Subjects: Acquisitions; Board of directors; Corporate culture; Corporate governance; Corporate strategy; Growth strategy; Mergers; Mergers & acquisitions; Stocks; Strategy implementation   Add   View  12 pp.  Article (Bad PS — MM fonts)    Making the Deal Real: How GE Capital Integrates Acquisitions   Add   View  16 pp.  Article Ashkenas, Ronald N.; DeMonaco, Lawrence J.; Francis, Suzanne C. Thousands of companies every year acquire other companies, or are acquired themselves. This event is usually painful and messy--and statistics show, it is frequently unsuccessful as well. Nearly half of all mergers fail. One company that has made a fine art of the acquisition integration process, however, is GE Capital, which has integrated hundreds of companies in the past decade. Consultants Ron Ashkenas and Suzanne Francis, and Lawrence DeMonaco of GE Capital, offer four lessons from the company's successful run. HBS Number: 98101 Type: Harvard Business Review Article Publication Date: 1/1/1998 Subjects: Acquisitions; Management of change; Mergers    Making the Financial Markets Safe: A Conversation with Robert Merton   Add   View  8 pp.  Article Author(s): Champion, David; Merton, Robert C. Publication Date: 10/01/2009 Product Type: Harvard Business Review Article HBS Number: R0910J Subjects: Capital markets; Crisis management; Derivatives; Risk management Academic Discipline: Finance Product Description: In this edited conversation with HBR senior editor David Champion, Merton, a professor at Harvard Business School, casts light on the role of derivatives in the current financial crisis. Merton was awarded the Nobel Prize in 1997 for his part in developing a new method to value derivatives, and after publication of that development, the markets in derivatives exploded: Today, the estimated notional value of derivative contracts exceeds $500 trillion. Merton posits that derivatives themselves cannot be the cause of a financial crisis. They are simply tools that can be used either functionally (to reduce risk) or dysfunctionally (in ways that increase risk without offsetting benefits). He also offers prescriptions for making the financial markets safer.    Managing as if Tomorrow Mattered   Add   View  11 pp.  Article Hayes, Robert H.; Garvin, David A. Investments in plant and equipment are sensitive to differences in how managers view the importance of short- vs. long-term issues. Yet most managers depend on highly analytic techniques like discounted cash flow analysis to evaluate capital investment proposals, and these techniques are often biased against long-term investment. Such methods place most of their emphasis on net present value or internal rate of return calculations, and as their use has increased, the growth of capital investment and R&D spending in the United States has decreased. McKinsey Award Winner. HBS Number: 82309 Type: Harvard Business Review Article Publication Date: 5/1/1982 Subjects: Capital expenditures; Capital investments; Facilities planning; Long term planning; McKinsey Award Winners; Present value; Rates of return; Securities analysis; Strategic planning    Managing Demographic Risk   Add   View  20 pp.  Article Author(s): Strack, Rainer; Baier, Jens; Fahlander, Anders Publication Date: 02/01/2008 Product Type: Harvard Business Review Article HBS Number: R0802J Subjects: Age groups; Analysis; Supply & demand; Work force management Academic Discipline: Finance Product Description: In developed nations, the workforce is aging rapidly. That trend has serious implications. Companies could face severe labor shortages in a few years as workers retire, taking critical knowledge with them. Businesses may also see productivity decline among older employees, especially in physically demanding jobs. The authors, partners at Boston Consulting Group, offer managers a systematic way to assess these dual threats — capacity risk and productivity risk — at their companies. It involves studying the age distribution of their employees to see if large percentages fall within high age brackets and then projecting — by location, unit, and job category — how the distribution will change over the next 15 years. Managers must also factor in both the impact of strategic moves on personnel needs and the future supply of workers in the market. When RWE Power analyzed its trends, the company learned that in 2018 almost 80% of its workers would be over 50. What's more, in certain critical areas its labor surplus was about to become a sizable shortfall. For instance, a shortage of specialized engineers would develop in the company just as their ranks in the job market thinned and competition to hire them intensified. Reversing its downsizing course, RWE Power took steps to increase its supply of workers in those key positions. The authors show how companies that face talent gaps, as RWE Power did, can close them through training, transfers, recruitment, retention, productivity improvements, and outsourcing. They also describe measures that companies can take to keep older workers productive, including workplace accomm    Managing Real Estate to Build Value   Add   View  12 pp.  Article Apgar, Mahlon, IV Real estate escapes the thoughtful attention of most senior managers. It often falls within the realm of their responsibilities, but many do not appreciate its potential impact on company performance. So they delegate real estate to specialists, who operate on a deal-by-deal basis and consider their decisions as administrative and technical tasks. Recently, however, some companies--IBM, AT&T, Chemical Bank, Dun & Bradstreet, and Sun Microsystems, for example--have recognized that by managing real estate as a business function, they can cut costs significantly and, at the same time, increase productivity. HBS Number: 95601 Type: Harvard Business Review Article Publication Date: 11/1/1995 Subjects: Capacity analysis; Capacity planning; Cost control; Financial management; Real estate    Measuring Investment Center Performance   Add   View  11 pp.  Article Reece, James S.; Cool, William R. A survey of Fortune "1000" companies shows that many companies deal with the problem of soaring interest rates by establishing investment centers and using return on investment (ROI) to measure their performance. Profit centers measure their own profitability with net income, pretax income, or net contribution. Investment centers determine profitability in relation to the unit's own investment base. Many companies use both ROI and RI (residual income) to calculate performance. The worst problem in using ROI or RI is that they will increase solely with time as depreciation reduces the investment base. The last calculation is to determine ROI budgets for investment centers. HBS Number: 78310 Type: Harvard Business Review Article Publication Date: 5/1/1978 Subjects: Financial management; Return on investment    Measuring Profit Center Managers   Add   View  6 pp.  Article Dearden, John The performance measurement system in many decentralized companies actually works against good management. It encourages profit center managers to cover up bad news, take short-term actions that may hurt the real interests of their organizations, and accept responsibility for things over which they have little or no control. The solution is to measure the performance of profit centers and their managers with different yardsticks. Measure profit centers with profit center financial statements that follow traditional accounting systems. To measure the managers, use separate profit budget reports. HBS Number: 87503 Type: Harvard Business Review Article Publication Date: 9/1/1987 Subjects: Budgeting; Control systems; Decentralization; Financial management; Performance measurement; Profit centers    Mezzanine Money for Smaller Businesses   Add   View  6 pp.  Article Torpey, William J.; Viscione, Jerry A. A mezzanine financing package may be the right thing for a small business that is having trouble finding long-term capital to finance its growth. Mezzanine loans are flexible. In most cases the lender provides from $500,000 to $5 million in subordinated debt over a five- to seven-year term at an interest rate costing no more, sometimes less, than senior debt. In exchange the borrower gives the investor warrants to purchase a small amount of the company's common stock--usually 5% to 15%--at a later stage. For lenders, mezzanine loans provide a higher total rate of return than most conventional loans because of the equity feature. For businesses, they provide affordable long-term debt without diluting the owners' equity. HBS Number: 87313 Type: Harvard Business Review Article Publication Date: 5/1/1987 Subjects: Entrepreneurial finance; Equity financing; Financing; Rates of return; Small business; Venture capital    Mysterious Disappearance of Retained Earnings   Add   View  9 pp.  Article Ball, Ben C., Jr. There is at most a marginal connection between the profitability of a mature company and the stock market's view of it--as this study of 50 of America's biggest companies demonstrates. Moreover, the price of a company's stock has no effect on its operations because the price does not affect its access to capital. The stock market is irrelevant. Evidently irrelevant, too--to the companies--are the stockholders who are their nominal owners. Apart from changing the faulty ways corporate performance is measured, such as return on equity, executives can move more funds into investors' hands in the form of dividends. Changes in the tax laws on dividends would encourage such movement. HBS Number: 87401 Type: Harvard Business Review Article Publication Date: 7/1/1987 Subjects: Equity financing; Stockholders    Myth of Japan’s Low-Cost Capital   Add   View  10 pp.  Article Kester, W. Carl; Luehrman, Timothy A. In the past several years, critics have offered many excuses for the low rate at which U.S. companies invest in manufacturing and the resulting decline in U.S. competitiveness. One excuse in particular has become increasingly popular--that capital in the United States is more expensive than in other countries, particularly Japan. In fact, differences in capital costs have been isolated and temporary, not broad and persistent. Companies that obtain capital on favorable terms will do so not because they are Japanese but because they are efficiently organized and governed. In short, U.S. managers should stop complaining about how much capital costs and worry more about how to manage it after it's been raised. HBS Number: 92305 Type: Harvard Business Review Article Publication Date: 5/1/1992 Subjects: Capital costs; Capital investments; Competition; Japan    Need Cash? Look Inside Your Company   Added   View  12 pp.  Article Author(s): Young, S. David; Kaiser, Kevin Publication Date: 05/01/2009 Product Type: Harvard Business Review Article HBS Number: R0905E Subjects: Capital structure; Cash Academic Discipline: Finance Product Description: The boom years have made business careless with working capital. So much cash was sloshing around the system that there seemed little point in worrying about how to wring more of it out, especially if that might dent reported profits and sales growth. Today, capital and credit have all but disappeared, customers are tightening belts, and suppliers aren't putting up with late payments. It's time, therefore, to take a cold, hard look at the way you're managing your working capital. If you do, say Insead professors Kaiser and Young, you'll very likely find that you have an awful lot of capital tied up in receivables and inventory. In this article, the authors explore six common mistakes that companies make in this area: managing to the income statement, which can encourage executives to tie up capital in stock and receivables because income statements often fail to include important cost items; rewarding the sales force for growth alone, which makes concessions in the terms of trade more likely, as salespeople look for ways to get customers to buy; overemphasizing production quality, which often results in gold-plated and slow production processes; tying receivables to payables, because even an unfortunate and costly change in supplier terms should in no way be a reason for revisiting the customer relationship; applying bankers' current and quick ratios, which tends to increase the likelihood that a company will face a liquidity crisis; and benchmarking competitors, which can make managers complacent when their working capital metrics are in line with industry norms. Simply correcting these mistakes will release a lot of hidden cash.    New Framework for Corporate Debt Policy   Add   View  17 pp.  Article Donaldson, Gordon In practice, management makes debt-capacity decisions by drawing on advice from external sources. This method of decision making fails to assess how much risk is actually involved for an individual company. Management must formulate an approach to the measurement of risk applicable to individual corporations. Expressing the limits of long-term borrowing in terms of an income statement of data, rather than the conventional balance sheet relationship between long-term debt and the total of all long-term sources, provides a more meaningful ratio for internal formulation of policy. This article, first published in 1962, is reprinted to include a retrospective commentary by the author. HBS Number: 78504 Type: Harvard Business Review Article Publication Date: 9/1/1978 Subjects: Cash flow; Debt management; Financial management; HBR Classics; Long term financing    New Tools for Managing Intangible Assets (Guest Column)   Add   View  4 pp.  Article Author(s): Schmidt, Jeffrey A. Publication Date: 06/01/2002 Product Type: Harvard Management Update Article Product Description: Although the importance of intangible assets to corporate performance has been well understood for some time, translating that importance into day-to-day decision making has proceeded slowly, and vital questions still remain. To answer such questions, Jeffrey Schmidt, the managing director of innovation at the global human resources consulting firm Towers Perrin, explains his company's recent collaboration with Baruch Lev, Philip Bardes Professor of Accounting and Finance at New York University's Stern School of Business. HBS Number: U0206E Subjects: Accounting; Capital investments; Intangible assets; Performance measurement Academic Discipline: Finance    New Ventures for Corporate Growth   Add   View  9 pp.  Article Roberts, Edward B. Venturing is serious business, requiring skill, patience, and entrepreneurial flair. Most new ventures involve entering unfamiliar markets, employing unfamiliar technology, and implementing an unfamiliar organizational structure. An approach of particular promise is the new-style joint venture, in which a small company with vigor, flexibility, and advanced technology joins forces with a large company with capital, marketing strength, and distribution channels. The most intensive corporate involvement occurs in the internal venture, in which a company sets up a separate entity within itself in order to enter new markets or to develop entirely new products. HBS Number: 80411 Type: Harvard Business Review Article Publication Date: 7/1/1980 Subjects: Development stage enterprises; Entrepreneurship; Growth strategy; Joint ventures; Product introduction; Securities analysis    No More Cozy Management Buyouts   Add   View  12 pp.  Article Lowenstein, Louis The $1 billion buyout of the 1980s has replaced the $3 million buyout of the 1970s, and the number of management buyouts (MBOs) is growing ever larger. A close look at 27 MBO proposals in general and one buyout--Fred Meyer, Inc.--in particular shows the financial ins and outs of a typical MBO. To slow down the pace of MBOs, and to protect the interests of the shareholders, federally mandated auctions should be adopted. These auctions would protect corporate loyalty and keep the profits for individuals from getting out of hand. HBS Number: 86113 Type: Harvard Business Review Article Publication Date: 1/1/1986 Subjects: Financial analysis; Government & business    Open Book Management: Optimizing Human Capital   Add   View  9 pp.  Article Author(s): Aggarwal, Raj; Simkins, Betty J. Publication Date: 09/15/2001 Product Type: Business Horizons Article Publisher: Business Horizons/Indiana University Product Description: Open book management (OBM) means opening a company's financial statements to all employees and providing the education that enables them to understand how the firm makes money and how their actions affect the bottom line. It is a method of managing without concealment that involves all employees in focusing on how to grow the business profitably. The experience of Manco, Inc., a medium-size supplier of branded consumer products for retail and office product channels, illustrates the four essential steps of OBM: 1) Get the information out there; 2) teach the basics of finance and business; 3) empower people to make decisions based on what they know; and 4) make sure everyone shares directly in the company's success, as well as its failure, with targets for net earnings and return on operating assets. With technological changes transforming business and the concurrent rise of intangible and human capital as the sources of wealth creation, OBM has begun to find its place in the business world. HBS Number: BH063 Subjects: Financial management; Human resources management; Open book management; Organizational management Academic Discipline: Finance    Options Approach to Capital Investment   Add   View  12 pp.  Article Dixit, Avinash K.; Pindyck, Robert S. Companies make capital investments to create and exploit profit opportunities. Opportunities are options--rights but not obligations to take some future action. The old net present value presumption that investment decisions are either HBS Number: 95303 Type: Harvard Business Review Article Publication Date: 5/1/1995 Subjects: Capital budgeting; Capital investments; Financial strategy; Present value; Return on investment; Risk assessment; Securities analysis; Valuation    Outside Directors with a Stake: The Linchpin in Improving Governance   Add   View  21 pp.  Article Author(s): Hambrick, Donald C.; Jackson, Eric M. Publication Date: 07/01/2000 Product Type: CMR Article Publisher: California Management Review HBS Number: CMR182 Subjects: Corporate governance; Outside directors; Stockholders; Success Academic Discipline: Finance Product Description: In recent years, numerous governance experts and activist investors have argued that outside directors should hold significant stakes in the companies they oversee. So far, however, systematic evidence that outside directors' holdings are actually associated with subsequent corporate performance has been scarce. This article provides such evidence. It examines a sample of companies that significantly outperformed their business sectors (in shareholder returns) over a 10-year period (Stars) and a matched sample of companies that underperformed their sectors during the same period (Laggards). At the outset of the 10-year period — before their performance diverged — the outside directors of the Star companies held substantially more equity (about four to five times more) than did the directors of the Laggard companies. Then, as the Stars outpaced the Laggards in performance, the disparity in director holdings grew even wider. The results strongly suggest that directors with a meaningful stake are a pivotal factor in improved governance. The article concludes with a proposal for a new approach for getting equity into directors' hands — a stock purchase matching fund for each director — that overcomes the drawbacks of currently prevailing approaches.    Painless Financial Literacy for Your Team (and You)   Add   View  5 pp.  Article Author(s): Case, John Publication Date: 12/01/1998 Product Type: Harvard Management Update Article Product Description: A growing number of companies are deciding that all employees, not just up-and-coming managers, should have a firm grasp of basic financial concepts and terminology. The driving forces behind this trend are the desire to make employees feel connected to the business and the need to make employees understand how they can have a direct impact on the bottom line. However, the idea of learning finance is likely to inspire feelings of either anxiety and dread or extreme boredom. But now there are some painless and even entertaining tools available for teaching employees the financials. Ranging from multi-media courses to board games, these tools help drive home the fundamentals by relating them to real-life business situations. The article includes a quiz entitled "Test Your Financial IQ," and a sidebar for managers on how to brush up their own financial skills. HBS Number: U9812C Geographic Setting: Industry Setting: Subjects: Employee development; Employee training; Financial management Academic Discipline: Finance    Pitfalls in Evaluating Risky Projects   Add   View  10 pp.  Article Hodder, James E.; Riggs, Henry E. Critics of American business claim that U.S. managers rely too heavily on a few financial techniques to weigh major investment decisions. Calculation of discounted cash flows, internal rates of return, and net present values, say critics, is inherently biased against long-term investments. But according to the authors, DCF procedures can work if management sets realistic hurdle rates and examines carefully its assumptions. Decision makers need to consider three critical issues: the effects of inflation, the different levels of uncertainty in different phases of a program, and management's own ability to mitigate risk. HBS Number: 85106 Type: Harvard Business Review Article Publication Date: 1/1/1985 Subjects: Cash flow; Financial management; Project evaluation; Rates of return; Risk management; Securities analysis    Putting Strategy into Shareholder Value Analysis   Add   View  8 pp.  Article Day, George S.; Fahey, Liam Shareholder value analysis (SVA) is the subject of much debate. Some managers herald it as a great contribution to corporate planning; others say it is too restrictive, too easily manipulated, or too dependent on subjective forecasts. The shortcoming is not in the technique itself but in the way companies apply it. SVA can lead managers astray in three ways: by undervaluing a strategy, by overvaluing a strategy, or by excluding strategy alternatives. HBS Number: 90204 Type: Harvard Business Review Article Publication Date: 3/1/1990 Subjects: Cash flow; Corporate strategy; Financial analysis; Financial management; Financial strategy    Real-World Way to Manage Real Options   Add   View  16 pp.  Article    Reckoning with the Pension Fund Revolution   Add   View  10 pp.  Article Drucker, Peter F. The 20 largest U.S. pension funds hold 10% of the equity capital of the largest U.S. companies, and, in total, pension funds have assets worth $2.5 trillion. They have grown to the extent that they must now address two issues: for what should corporate management be held accountable, and how should accountability be structured? Some answers can be found by looking at Germany and Japan, where ownership is even more concentrated than in the United States. These countries define performance results by maximizing the wealth-producing capacity of the enterprise. HBS Number: 91202 Type: Harvard Business Review Article Publication Date: 3/1/1991 Subjects: Auditing; Financial management; Investment management; Pension funds; Performance measurement    Rehabilitating the Leveraged Buyout   Add   View  15 pp.  Article Kester, W. Carl; Luehrman, Timothy A. Once the rage of Western capitalism, leveraged buyouts have lost their glamour and much of their respectability. Suggest an LBO as a healthy way to create value, and most people will assume you are just trying to stimulate lively conve HBS Number: 95305 Type: Harvard Business Review Article Publication Date: 5/1/1995 Subjects: Acquisitions; Board of directors; Capital structure; Corporate governance; Leveraged buyouts; Mergers; Recapitalization    Replacement Decision: Getting It Right   Add   View  7 pp.  Article Author(s): Kierulff, Herbert E. Publication Date: 05/15/2007 Product Type: Business Horizons Article Publisher: Business Horizons/Indiana University HBS Number: BH233 Industry Setting: Financial industry Subjects: Capital budgeting; Cost benefit analysis; Incremental improvements Academic Discipline: Finance Product Description: Replacing assets is one of the most important and frequently made decisions in business. A review of the finance literature shows that treatment of this subject diverges widely. More importantly, the net present value decision model most often described discounts only the differences between cash flows and terminal (salvage) values of the replace and do-not-replace alternatives. It tacitly assumes that the risk and inflation factors associated with these values are the same. As a result, for reasons that are counterintuitive in part, it may select the wrong alternative. Through use of a case example, this article demonstrates why the currently popular approach presents difficulties. Further, it provides a model designed to overcome the problems by making each alternative's cash flow and terminal value visible, and assigning appropriate risk and inflation discount factors to each.    Right Way to Manage Your Pension Fund   Add   View  11 pp.  Article Arnott, Robert D.; Bernstein, Peter L. Pension portfolio management focuses on the balance between risk and return on assets held. With a new ruling of the Financial Accounting Standards Board, pension fund managers and sponsors must also pay close attention to the surplus- HBS Number: 88101 Type: Harvard Business Review Article Publication Date: 1/1/1988 Subjects: Bonds; Capital markets; Cost benefit analysis; Financial management; Management accounting; Pension funds; Portfolio management; Retirement    Risk Analysis in Capital Investment   Add   View  14 pp.  Article Hertz, David B. Originally published in the January/February 1964 issue of HBR, this article presents an innovative approach for calculating the risks entailed in projects such as modernizing a plant or launching new products. The technique determines a frequency distribution for each of the factors influencing the rate of return and focuses on specific combinations of variables. Computer runs and data comparisons are an inherent part of the analysis. This approach allows management to understand the nature of the data being used, and thereby results in wiser investment decisions. The retrospective commentary is an informative update on the subject of risk analysis. HBS Number: 79504 Type: Harvard Business Review Article Publication Date: 9/1/1979 Subjects: Capital investments; HBR Classics; Rates of return; Risk assessment    Risky Business of Diversification   Add   View  10 pp.  Article Biggadike, Ralph Launching a new business is a risky endeavor. Data on the performance of a sample of corporate new ventures help determine whether large losses for several years are the exception rather than the rule, and how long on average it takes corporate new ventures to improve performance. Despite its adverse effect on current financial performance, rapid share building is a recommendation. Another recommendation is large-scale entry for the company that wants to grow through the addition of a new business. HBS Number: 79303 Type: Harvard Business Review Article Publication Date: 5/1/1979 Subjects: Corporate strategy; Development stage enterprises; Diversification    Rules to Acquire By   Add   View  16 pp.  Article Author(s): Nolop, Bruce Publication Date: 09/01/2007 Product Type: Harvard Business Review Article HBS Number: R0709J Subjects: Acquisitions; Corporate strategy; Strategy Academic Discipline: Finance Product Description: When Bruce Nolop was an investment banker, he saw only the glamorous side of acquisitions. Since becoming executive vice president and chief financial officer of Pitney Bowes, however, he's learned how hard it is to pull them off. In this article, he shares the lessons his organization has learned throughout its successful six-year acquisition campaign, which comprised more than 70 deals: Stick to adjacent spaces, take a portfolio approach, have a business sponsor, know how to judge an acquisition, and don't shop when you're hungry. Pitney Bowes's management and board of directors now use these five basic rules to chart the company's growth course. For example, when evaluating a potential acquisition, Pitney Bowes distinguishes between “platform” and “bolt-on” acquisitions to set expectations and guide integration efforts; the company applies different criteria, depending on the type. According to Nolop, any company can improve its acquisition track record if it is able to learn from experience, and he suspects that Pitney Bowes's rules apply just as well to other organizations. Buying a company should be treated like any other business process, he maintains. It should be approached deliberately and reviewed and improved constantly. That means mapping a complex chain of actions; paying attention to what can go right or wrong at different stages; and using standard, constantly honed, approaches and tools.    Second Thoughts on Going Public   Add   View  6 pp.  Article Salomon, Richard In 1961, Richard Salomon, the sole owner of Charles of the Ritz, decided to issue public shares in his company. The perceived advantages were the possibility of diversification, establishment of value for estate and inheritance taxes, availability of equity, personal satisfaction, liquidity, and the ability to retain control of the business. When the shares were offered, disadvantages became apparent. Closely knit executives began jockeying for positions and personal relations became strained. Short-term results became a priority over long-range planning. Stockholders were primarily interested in share value, expressing opposition to ventures that jeopardized short-term profit for the sake of long-term growth. HBS Number: 77510 Type: Harvard Business Review Article Publication Date: 9/1/1977 Subjects: Capital markets; Financial management; Public sector; Stock offerings; Stockholders    Small Company Finance: What the Books Don’t Say   Add   View  5 pp.  Article Levin, Richard I.; Travis, Virginia R. What may be appropriate for managing the finances of large public corporations doesn't necessarily (or often) fit private companies. Standard financial statements are unreliable when money moves freely between the business and owner. And rules of thumb for investment decision making and growth aren't useful either. When a company is largely operated as a vehicle for a family--to provide jobs, security, flexibility, and access to opportunities that suit the family as much as the market--conventional financial protocols don't always matter. HBS Number: 87608 Type: Harvard Business Review Article Publication Date: 11/1/1987 Subjects: Entrepreneurial finance; Family owned businesses; Financial management; Investment management; Small business    So You Think You Understand Revenues   Add   View  4 pp.  Article Author(s): Shaw, Robert; Mitchell, Vincent-Wayne Publication Date: 05/01/2007 Product Type: Harvard Business Review Article HBS Number: F0705D Subjects: Cost analysis; Revenue growth Academic Discipline: Finance Product Description: The sophisticated technologies used to understand costs don't illuminate revenue sources well. For that you need a whole new breed of accountant.    Staying Power of the Public Corporation   Add   View  10 pp.  Article Rappaport, Alfred The publicly held corporation has not outlived its usefulness. Though LBOs release much of the untapped value and correct many of the inefficiencies of large public companies, they also have a limited demand and a limited life. The public corporation is inherently flexible and self-renewing. A four-point plan to maximize shareholder value will help public companies to: 1) find the highest valued use for all assets; 2) limit investment to opportunities with credible potential to create value; 3) return cash to shareholders when such investments are not available; and 4) establish incentives for managers and employees to focus on the critical drives that create value. HBS Number: 90110 Type: Harvard Business Review Article Publication Date: 1/1/1990 Subjects: Corporate strategy; Incentives; Investment management; Leveraged buyouts; Organizational structure; Public sector; Stockholders    Stock Market Signals to Managers   Add   View  8 pp.  Article Rappaport, Alfred Managers must stop arguing about whether the market has valued their company's stock price fairly and learn to interpret what share prices tell them about market expectations of their future performance. Here is a "market signals approach" that allows management to compare its own plans against those of the market. This technique enables executives to: determine whether a suggested acquisition price is too high; use share price to ascertain whether market expectations about a company's hurdle rates are reasonable; discover at what level it should set hurdle rates for capital investment projects; and better align management and shareholder interests. HBS Number: 87611 Type: Harvard Business Review Article Publication Date: 11/1/1987 Subjects: Capital investments; Corporate strategy; Securities markets; Stockholders; Valuation    Stock or Cash? The Trade-Offs for Buyers and Sellers in Mergers and Acquisitions   Add   View  16 pp.  Article Rappaport, Alfred; Sirower, Mark L. In 1988, less than 2% of large deals were paid for entirely in stock; by 1998, that number had risen to 50%. The shift has profound ramifications for shareholders of both the acquiring and acquired companies. In this article, the autho HBS Number: 99611 Type: Harvard Business Review Article Publication Date: 11/1/1999 Subjects: Acquisitions; Corporate governance; Equity financing; Mergers; Mergers & acquisitions; Stock offerings; Stockholders    Stock Prices, Beta, and Strategic Planning   Add   View  10 pp.  Article Harrington, Diana R. One way for companies to get reliable information about the economic risk of capital investment strategies is to use the capital asset pricing model (CAPM). It enables them to quantify risk and to link it with the returns they expect. Alaska Interstate, Inc. is one company that has used CAPM successfully to incorporate a consideration of risk into its strategic planning process. HBS Number: 83306 Type: Harvard Business Review Article Publication Date: 5/1/1983 Subjects: Corporate strategy; Risk management; Strategic planning    Strategic Analysis for More Profitable Acquisitions   Add   View  13 pp.  Article Rappaport, Alfred Accurate and rapid analysis of the risks and future benefits of an acquisition is necessary in today's market. The planning of corporate strategy with a view toward the economic and technological environment is the initial step of the analysis. The subsequent search and screen process establishes a list of candidates. The financial evaluation process includes an analysis of the worth and future value of both companies according to several hypothetical scenarios. The "discounted cash flow" (DCF) evaluation technique is useful because it includes the acquisition's added cash flow and the cost of capital. Use of such evaluation techniques can determine maximum acceptable acquisition prices quickly and serve as a catalyst for reexamining a company's overall strategy. HBS Number: 79409 Type: Harvard Business Review Article Publication Date: 7/1/1979 Subjects: Acquisitions; Cash flow; Corporate strategy; Financial analysis; Risk assessment    Strategic Secret of Private Equity   Added   View  16 pp.  Article Author(s): Barber, Felix; Goold, Michael Publication Date: 09/01/2007 Product Type: Harvard Business Review Article HBS Number: R0709B Subjects: Acquisitions; Private equity; Return on investment Academic Discipline: Finance Product Description: The huge sums that private equity firms make on their investments evoke admiration and envy. Typically, these returns are attributed to the firms' aggressive use of debt, concentration on cash flow and margins, freedom from public company regulations, and hefty incentives for operating managers. But the fundamental reason for private equity's success is the strategy of buying to sell — one rarely employed by public companies, which, in pursuit of synergies, usually buy to keep. The chief advantage of buying to sell is simple but often overlooked, explain Barber and Goold, directors of the Ashridge Strategic Management Centre. Private equity's sweet spot is acquisitions that have been undermanaged or undervalued, where there's a onetime opportunity to increase a business's value. Once that gain has been realized, private equity firms sell for a maximum return. A corporate acquirer, in contrast, will dilute its return by hanging on to the business after the growth in value tapers off. Public companies that compete in this space can offer investors better returns than private equity firms do. (After all, a public company wouldn't deduct the 30% that funds take out of gross profits.) Corporations have two options: (1) to copy private equity's model, as investment companies Wendel and Eurazeo have done with dramatic success, or (2) to take a flexible approach, holding businesses for as long as they can add value as owners. The latter would give companies an advantage over funds, which must liquidate within a preset time — potentially leaving money on the table. Both options present public companies with challenges, including U.S. capital gains taxes    Strategy as a Portfolio of Real Options   Add   View  16 pp.  Article Luehrman, Timothy A. In this article, Timothy A. Luehrman, professor of finance at Thunderbird, The American Graduate School of International Management, explores how option pricing can be used to improve decision making about the sequence and timing of a HBS Number: 98506 Type: Harvard Business Review Article Publication Date: 9/1/1998 Subjects: Capital investments; Corporate strategy; Financial instruments; Option pricing; Options; Real options    Survival of the Richest   Add   View  4 pp.  Article Author(s): Lo, Andrew W. Publication Date: 03/01/2006 Product Type: Harvard Business Review Article Product Description: Are financial markets driven by efficiency or by irrational behavior? The ``adaptive markets hypothesis'' brings Darwinian principles into the mix, suggesting that neither is the case. HBS Number: F0603A Subjects: Behavior; Efficient markets; Heuristics; Market analysis; Risk Academic Discipline: Finance    Take the Money — or Run?   Add   View  12 pp.  Article Author(s): Mullins, John W. Publication Date: 11/01/2004 Product Type: Harvard Business Review Article HBS Number: R0411A Subjects: Brief case; Ethics; HBR Case Discussions; Negotiations; Petroleum industry; Venture capital Academic Discipline: Finance Product Description: Petrolink's business plan looks like a winner. At present, the only available pipeline for operators in the Baltic Sea's newly developed Helmark gas field is owned and operated by the Russian oil and gas company Gazprom. Petrolink's founders believe that the company that opens a new pipeline should find ready customers among the field's numerous independent producers. The Petrolink team has been talking with two potential investors. After six weeks of due diligence, London Development Partners — a large, well-established venture capital firm with no experience in the gas business — offers a relatively small early round of investment without any tangible commitments to future rounds, far from what the team had hoped for. Polish venture capital firm BRX Capital has been in business fewer than five years, but it has already made investments in the Eastern European oil and gas industry. BRX agrees to the capital structure that Petrolink proposes, and to invest both the first- and second-round equity amounts. One of the start-up's main objectives has been to ensure that no one investor has too much clout, so the BRX arrangement suits them. But now that a four million eurodollar check is on the table, there's been an apparent breach of trust by the Polish VC. Petrolink's founders discover that an agreed-upon provision covering ownership dilution has been changed. Should they take BRX's money or go elsewhere? George Brenkert of Georgetown University; Sonia Lo of Chalsys Partners; William Sahlman of Harvard Business School; and Charalambos Vlachoutsicos, adviser to 7L Capital Partners Emerging Europe, comment on this fictional c

Takeovers: Folklore and Science   Added   View  15 pp.  Article Jensen, Michael C. Shareholders, who are the most important constituency of the modern corporation because they bear its residual risk, benefit most directly from acquisitions because of the increase in the value of target company shares. Many current criticisms directed at takeover activity are wrong or based on faulty logic. Takeovers protect shareholders from mismanagement of a corporation as they allow alternative management teams to compete for the right to manage the corporation's assets. The takeover market provides a unique, powerful, and impersonal mechanism to accomplish the major restructuring and redeployment of assets continually required by changes in technology and consumer preferences. HBS Number: 84609 Type: Harvard Business Review Article Publication Date: 11/1/1984 Subjects: Acquisitions; Restructuring; Stockholders    Ten Ways to Create Shareholder Value   Add   View  20 pp.  Article Author(s): Rappaport, Alfred Publication Date: 09/01/2006 Product Type: Harvard Business Review Article HBS Number: R0609C Geographic Setting: United States Industry Setting: Hedge funds industry Subjects: Bonuses; Business models; Compensation; Disclosure; Earnings; Financial planning; Financial strategy; Governance; Growth strategy; Incentives; Long range view; Long term planning; Mergers & Acquisitions; Performance; Rewards; Shareholder relations; Stock options; Stockholders; Value creation Academic Discipline: Finance Product Description: Executives have developed tunnel vision in their pursuit of shareholder value, focusing on short-term performance at the expense of investing in long-term growth. It's time to broaden that perspective and begin shaping business strategies in light of the competitive landscape, not the shareholder list. In this article, Alfred Rappaport offers 10 basic principles to help executives create lasting shareholder value. For starters, companies should not manage earnings or provide earnings guidance; those that fail to embrace this first principle of shareholder value will almost certainly be unable to follow the rest. Additionally, leaders should make strategic decisions and acquisitions and carry assets that maximize expected value, even if near-term earnings are negatively affected as a result. During times when there are no credible value-creating opportunities to invest in the business, companies should avoid using excess cash to make investments that look good on the surface but might end up destroying value, such as ill-advised, overpriced acquisitions. It would be better to return the cash to shareholders in the form of dividends and buybacks. Rappaport also offers guidelines for establishing effective pay incentives at every level of management; emphasizes that senior executives need to lay their wealth on the line just as shareholders do; a    Ten Ways to Create Shareholder Value (HBR OnPoint Enhanced Edition)   Add   View  20 pp.  Article Author(s): Rappaport, Alfred Publication Date: 09/01/2006 Product Type: HBR OnPoint Article HBS Number: 1069 Subjects: Bonuses; Financial planning; Financial strategy; Long term planning; Shareholder relations; Stock options; Stockholders; Value creation Academic Discipline: Finance Product Description: Executives have developed tunnel vision in their pursuit of shareholder value, focusing on short-term performance at the expense of investing in long-term growth. It's time to broaden that perspective and begin shaping business strategies in light of the competitive landscape, not the shareholder list. In this article, Alfred Rappaport offers 10 basic principles to help executives create lasting shareholder value. For starters, companies should not manage earnings or provide earnings guidance; those that fail to embrace this first principle of shareholder value will almost certainly be unable to follow the rest. Additionally, leaders should make strategic decisions and acquisitions and carry assets that maximize expected value, even if near-term earnings are negatively affected as a result. During times when there are no credible value-creating opportunities to invest in the business, companies should avoid using excess cash to make investments that look good on the surface but might end up destroying value, such as ill-advised, overpriced acquisitions. It would be better to return the cash to shareholders in the form of dividends and buybacks. Rappaport also offers guidelines for establishing effective pay incentives at every level of management; emphasizes that senior executives need to lay their wealth on the line just as shareholders do; and urges companies to embrace full disclosure, an antidote to short-term earnings obsession that serves to decrease investor uncertainty, which could reduce the cost of capital and increase the share price. The author notes that a few types of companies — h    The Determinants and Evaluation of Merger Success   Added   View  10 pp.  Article Author(s): Epstein, Marc J. Publication Date: 01/15/2005 Product Type: Business Horizons Article Publisher: Business Horizons/Indiana University Product Description: Many decry the preponderance of merger failures and conclude that mergers and acquisitions (M&A) are failed strategies. However, analysis of the causes of failure is often shallow and the measures of success weak. Focuses on what makes a merger successful and the appropriate manner of evaluating merger success. Extensive field research of the merger of J.P. Morgan and Chase Manhattan Bank in 2000 illustrates the drivers of merger success and how to improve and value the contributions of mergers. HBS Number: BH113 Subjects: Conglomerates; Mergers & acquisitions; Success Academic Discipline: Finance    The Finance Function in a Global Corporation   Add   View  8 pp.  Article Author(s): Desai, Mihir A. Publication Date: 07/01/2008 Product Type: Harvard Business Review Article HBS Number: R0807K Subjects: CFO; Global business; Multinational corporations Academic Discipline: Finance Product Description: As corporations go global, capital markets open up within them, giving companies a powerful mechanism for arbitrage across national financial markets. But in managing their internal markets to build an advantage, CFOs must balance the opportunities with the challenges of operating in multiple environments. By exploiting their internal capital markets, CFOs can create value in three functions: Financing. A CFO can reduce a group's tax bill by, for example, borrowing in countries with high tax rates and lending to operations in countries with lower rates. But the global CFO needs to be aware of the downsides of strategic financing. Saddling the managers of subsidiaries with debt, for instance, can cloud their profit performance. Risk management. Instead of managing currency exposures through the financial market, global firms can offset natural currency exposures through their worldwide operations. Doing so, however, can obscure the performance of local units, making it harder for headquarters to assess local managers and easier for financial managers to take purely speculative positions. Capital budgeting. CFOs can add value by getting smarter about valuing investment opportunities. But adopting an overly formal approach may tempt managers to game the system and can lead to an outcome at odds with the company's objectives. CFOs can help their global finance operations make the most of their opportunities by inventorying their capabilities and ensuring their adaptation to institutional variation and their alignment with organizational goals. To achieve this, a global finance function must locate decision making at a geographic level where other strategic decisions are mad    Three Decades of Scenario Planning in Shell   Add   View  19 pp.  Article Author(s): Cornelius, Peters; Van de Putte, Alexander; Romani, Mattia Publication Date: 11/01/2005 Product Type: CMR Article Publisher: California Management Review HBS Number: CMR326 Subjects: Analysis; Investment management; Planning; Real options; Scenario analysis; Strategic planning Academic Discipline: Finance Product Description: Major shifts in the business environment can make whole investment strategies obsolete. To anticipate such shifts, the Royal Dutch/Shell Group of Companies uses scenario analysis, a method it pioneered three decades ago. Given that most investments are irreversible, scenario planning can be combined with real options analysis to help identify options in the future; help time the decision to exercise a real option; and provide an important input in the process of evaluating real options.    Today’s Options for Tomorrow‘s Growth   Add   View  10 pp.  Article Kester, W. Carl An appropriations committee's job is often complicated by the conflict between managers who favor hard quantitative techniques and those who prefer a softer qualitative analysis when evaluating investment opportunities. Reliance on quantitative analysis--usually involving discounted cash flow--can lead an organization to invest in projects that have little risk but that are also unexciting to strategists. The answer does not lie in favoring either side over the other. Instead, executives need to adopt a new way of thinking that gives a hard analytic edge to the soft side of the argument. They need to think of investment opportunities as future growth options for the company. HBS Number: 84208 Type: Harvard Business Review Article Publication Date: 3/1/1984 Subjects: Capital investments; Growth management; Securities analysis    Too Big to Fail? Walter Wriston and Citibank   Add   View  8 pp.  Article Grant, James In his review of Phillip L. Zweig's Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy, James Grant puts the career of Citibank's longtime CEO into historical perspective. At the end of the last century, credit was a virtue to be cultivated. But by the time Walter Wriston became Citibank's president in 1967, banking had changed. The Federal Reserve Act had given the United States a central bank, and the Federal Deposit Insurance Corp. protected depositors' savings. In Wriston's time, credit, far from being delicate, often appeared to be indestructible. Grant, who edits the respected Grant's Interest Rate Observer, argues that credit is no longer an absolute virtue, like honesty, but an economic asset, like property, plant, or equipment. HBS Number: 96404 Type: Harvard Business Review Article Publication Date: 7/1/1996 Subjects: Banking; Credit; Leadership    Truth About Private Equity Performance   Added   View  4 pp.  Article Author(s): Gottschalg, Oliver; Phalippou, Ludovic Publication Date: 12/01/2007 Product Type: Harvard Business Review Article HBS Number: F0712D Subjects: Performance measurement; Private equity Academic Discipline: Finance Product Description: Private equity fund performance is most often reported in a way that exaggerates the truth. A modified calculation gives a more accurate read of performance and can change a fund's relative rank.    Turbocharging Asian Turnarounds   Add   View  4 pp.  Article Author(s): Yi, Sunny; Park, Chul-Joon Publication Date: 06/01/2006 Product Type: Harvard Business Review Article Product Description: Private equity investors in Asia are fine-tuning the art of the turnaround using three principal strategies. HBS Number: F0606J Geographic Setting: Asia Industry Setting: Banking industry Subjects: Accounting & control; Change management; Design; Financial strategy; Human resources management; Infrastructure; International business; Investors; Mergers & Acquisitions; Private equity; Turnarounds Academic Discipline: Finance    Uncovering Your Hidden Occupancy Costs   Add   View  16 pp.  Article Apgar, Mahlon, IV Senior managers at large companies may think that occupancy costs are too insignificant to worry about, too technical to analyze, and too fixed to control. But occupancy costs can hurt a company's earnings, share value, and overall performance. To manage occupancy costs, managers must be able to identify their components, measure their impact, understand what drives them, and develop options to change them. Four basic tools help diagnose problems: a cost history, a loss analysis, a component analysis, and a lease aging profile. Executives also must understand cost drivers like leasing, location, and layout. HBS Number: 93301 Type: Harvard Business Review Article Publication Date: 5/1/1993 Subjects: Cost analysis; Facilities planning; Real estate    Use Joint Ventures to Ease the Pain of Restructuring   Add   View  12 pp.  Article Nanda, Ashish; Williamson, Peter J. For large corporations that are refocusing their portfolios, the problem of how best to dispose of basically sound but underperforming businesses remains. Putting a business up for sale can be its kiss of death, with employee morale plummeting and prospective buyers unaware of the business's true potential value. The solution may be a restructuring joint venture, an arrangement that allows the buyer to learn about the business's untapped possibilities before buying it outright, and that often results in higher returns to the seller than a straight sale would. The authors contrast the successful joint venture involving Whirlpool and Philips with the disastrous results of Maytag's purchase of the Chicago Pacific Corp. HBS Number: 95608 Type: Harvard Business Review Article Publication Date: 11/1/1995 Subjects: Divestiture; Joint ventures; Portfolio management; Reorganization; Restructuring    Using APV: A Better Tool for Valuing Operations   Added   View  12 pp.  Article Author(s): Luehrman, Timothy A. Publication Date: 05/01/1997 Product Type: Harvard Business Review Article HBS Number: 97306 Subjects: Acquisitions; Assets; Capital budgeting; Capital costs; Financial analysis; Present value; Valuation Academic Discipline: Finance Product Description: For the past 25 years, managers have been taught that the best practice for valuing assets — that is, an existing business, factory, product line, or market position — is to use a discounted-cash-flow (DCF) methodology. That is still true. But the particular version of DCF that has been accepted as the standard — using the weighted-average cost of capital (WACC) — is now obsolete. Today's better alternative, adjusted present value (APV), is especially versatile and reliable. It will likely replace WACC as the DCF methodology of choice among generalists. Like WACC, APV is used to value operations, or assets-in-place. Timothy Luehrman explains APV and walks readers through a case example designed to teach them how to use it. May be used with: (9-297-082) Note on Value Drivers.    Valuation and Discounted Cash Flows   Add     17 pp.  Teaching Note For use with 9-291-028 HBS Number: 5-291-029 Subjects: Bonds; Capital markets; Financial planning; Present value; Valuation    Valuation Matters   Add   View  3 pp.  Article Author(s): Rappaport, Alfred; Mauboussin, Michael J. Publication Date: 03/01/2002 Product Type: Harvard Business Review Article Product Description: Business decisions based on poor valuation practices can create significant losses. Here's a straightforward set of calculations that will help your company assess the impact of its valuation decisions on shareholder returns. HBS Number: F0203D Subjects: Capital budgeting; Capital costs; Financial analysis; Present value Academic Discipline: Finance    Value-Adding CFO: An Interview with Disney’s Gary Wilson   Add   View  10 pp.  Article Wilson, Gary; Willigan, Geraldine E. In this interview, Gary Wilson, executive vice president and CFO of the Walt Disney Co., discusses combining financial sophistication with an imaginative, strategic approach to business. Interviewer: Geraldine E. Willigan. HBS Number: 90115 Type: Harvard Business Review Article Publication Date: 1/1/1990 Subjects: Corporate strategy; Creativity; Entertainment industry; Executives; Financial management; Interviews    Venture Capital Method: Valuation Problem Set   Add   View  3 pp.  Exercise Sahlman, William A.; Janower, Andrew Presents a short problem set designed as an introduction to the venture capital method of problem solving. HBS Number: 9-396-090 Type: Exercise Publication Date: 10/5/1995 Subjects: Entrepreneurial finance; Financing; Valuation; Venture capital Supplementary Materials: Supplement (Exercise), (9-396-106), 3p, by William A. Sahlman, Andrew Janower    Venture Capital or Private Equity? The Asian Experience   Added   View  10 pp.  Article Author(s): Naqi, Sayed Ahmed; Hettihewa, Samanthala Publication Date: 07/01/2007 Product Type: Business Horizons Article Publisher: Business Horizons/Indiana University HBS Number: BH243 Industry Setting: Private equity Subjects: Foreign investment; Private equity; Venture capital Academic Discipline: Finance Product Description: Venture capital in Asia has exhibited remarkable growth over the last two decades. Researchers and practitioners have, however, expressed doubts as to whether what is being reported as venture capital in Asia can really be classified as such. Authors of scholarly studies often avoid this debate and, consequently, fail to caution readers about the applicability of their research findings. Through an exploration of the history, development, and composition of venture capital in Asia, not only confirms significant differences between Asian and traditional venture capital, but also finds that venture capital in Asia differs little from what is commonly called private equity. As such, a need exists within the venture capital literature to recognize this peculiarity of the Asian venture capital market. Moreover, venture capitalists considering expansion into Asia must comprehend the nature of the Asian market in order to avoid disillusionment and frustrations which may result from inadequate understanding.    Venture Capital Valuation Problem Set   Add   View  5 pp.  Exercise Author(s): Sahlman, William A. Publication Date: 08/26/2006 Product Type: Exercise HBS Number: 9-807-036 Subjects: Entrepreneurial finance; Financing; Valuation; Venture capital Academic Discipline: Finance Supplementary Materials: Supplement (Exercise), (9-396-106), 3p, by William A. Sahlman, Andrew Janower; Supplement (Exercise), (9-802-162), 7p, by Walter Kuemmerle Product Description: To be used with (396-090). An abstract is not available for this product.    Walt Disney Co.’s Sleeping Beauty Bonds   Add   View  4 pp.  Article Baldwin, Carliss Y. Walt Disney Co. issues a 100-year bond. This exercise describes the terms of the bond and immediate capital market reaction. Teaching Purpose: The questions (and associated spreadsheet model) lead students through an analysis of bond cash flow, present value, and interest rate sensitivity of bonds of different maturities. Suitable as an introduction to bond valuation and fixed income securities. May be used with: (9-294-038) Walt Disney Co.'s Sleeping Beauty Bonds, Duration Analysis. HBS Number: 9-294-034 Type: Exercise Publication Date: 1/31/1994 Subjects: Bonds; Capital markets; Entertainment industry; Hedging; Present value; Valuation    Walt Disney Co.’s Sleeping Beauty Bonds, Duration Analysis   Add   View  5 pp.  Article Baldwin, Carliss Y. Walt Disney Co. issues a 100-year bond. This exercise describes the terms of the bond and immediate capital market reaction. Teaching Purpose: The questions (and associated spreadsheet model) lead students through an analysis of bond cash flow, present value, interest rate sensitivity, and duration. Suitable as an introduction to bond valuation and duration-based hedging. May be used with: (9-294-034) Walt Disney Co.'s Sleeping Beauty Bonds. HBS Number: 9-294-038 Type: Exercise Publication Date: 1/31/1994 Revision Date: 7/13/2000 Subjects: Bonds; Capital markets; Entertainment industry; Hedging; Present value; Valuation    What’s It Worth?: A General Manager‘s Guide to Valuation   Added   View  12 pp.  Article Luehrman, Timothy A. Behind every major resource-allocation decision a company makes lies some calculation of what that move is worth. So it is not surprising that valuation is the financial analytical skill general managers want to learn more than any oth HBS Number: 97305 Type: Harvard Business Review Article Publication Date: 5/1/1997 Subjects: Acquisitions; Capital budgeting; Capital costs; Financial analysis; Joint ventures; Present value; Valuation    When a Strategic Plan Includes Bankruptcy   Add   View  7 pp.  Article Author(s): Pearce, John A., II; DiLullo, Samuel A. Publication Date: 09/15/1998 Product Type: Business Horizons Article Publisher: Business Horizons/Indiana University Product Description: In an average week, more than 300 companies fail. And more than 75% of those desperate firms file for a ``liquidation bankruptcy,'' agreeing to a complete distribution of their assets to creditors. The remaining 25% refuse to surrender until a final option is exhausted: petitioning the courts for a ``reorganization bankruptcy,'' trying to persuade its creditors to freeze their claims temporarily while it reorganizes to rebuild profitable operations. Proper and timely use of reorganization bankruptcy can bring relief from otherwise devastating indebtedness; chosen for the right reasons and correctly implemented, it can provide a financially, strategically, and ethically sound basis for serving the interests of all stakeholders. A model is offered for analysis of the bankruptcy situation and the turnaround response. The successful integration of reorganization bankruptcy as a key component of a strategic plan is based on an understanding of bankruptcy law and how its provisions affect the company, as well as the timely use of Chapter 11 protection as it was intended -- to retrench systematically and put together a new strategy that evokes support of all stakeholders. It should never become a popular strategic choice; but if properly exercised, it can revive a deserving organization. HBS Number: BH014 Subjects: Bankruptcy; Bankruptcy reorganization; Business failures; Corporate strategy; Entrepreneurial finance; Entrepreneurship; Government policy Academic Discipline: Finance    When Does Restructuring Improve Economic Performance?   Add   View  23 pp.  Article Author(s): Bowman, Edward H.; Singh, Harbir; Useem, Michael; Bhadury, Raja Publication Date: 01/01/1999 Product Type: CMR Article Publisher: California Management Review Product Description: Corporate restructuring has been the focus of much debate in the past few years. This article addresses the debate about the effectiveness of corporate restructuring by examining 52 studies presented within 25 research articles on restructuring and its impact on economic performance. The authors distinguish three forms of restructuring: financial, portfolio, and organizational. Based on the research reviewed here, financial restructuring has the highest positive impact on performance, followed by portfolio restructuring. Organizational restructuring has little consistent impact on performance. HBS Number: CMR141 Subjects: Economic analysis; Financial strategy; Reorganization; Restructuring Academic Discipline: Finance    Who Rules the World’s Financial Markets?   Add   View  7 pp.  Article O'Brien, Richard Orange County, Metallgesellschaft, Procter & Gamble, and Gibson Greetings all have one thing in common: all are losers in the new global derivatives markets. Those visible losses in a market that has long been suspected of being uncert HBS Number: 95206 Type: Harvard Business Review Article Publication Date: 3/1/1995 Subjects: Currency; Derivatives; International finance; Risk management    Who Supplied the Supply Side?   Add   View  8 pp.  Article Warsh, David Two new books, The Power of the Financial Press: Journalism and Economic Opinion in Britain and America by Wayne Parsons and The Growth Experiment: How the New Tax Policy is Transforming the U.S. Economy by Lawrence B. Lindsay, examine the supply-side revolution. Parsons focuses on its grass-roots origins and the role played by the business press but ignores university economists' contributions. Lindsey propounds that those university economists were the ones who led people to reject Keynesianism, but he overstates the successes of the new economics and perpetuates lower taxes as a cure-all. HBS Number: 90314 Type: Harvard Business Review Article Publication Date: 5/1/1990 Subjects: Corporate strategy; Economic analysis; Economic policy; Inflation; Taxation    Why ICI Chose to Demerge   Add   View  12 pp.  Article Owen, Geoffrey; Harrison, Trevor Britain's Imperial Chemical Industries (ICI), founded in 1926, was for decades the dominant producer in its home market. As early as the 1940s, the board wondered whether a company so big and diverse was manageable, but ICI kept growin HBS Number: 95207 Type: Harvard Business Review Article Publication Date: 3/1/1995 Subjects: Chemicals; Corporate strategy; United Kingdom    Why Not Leverage Your Company to the Hilt?   Add   View  8 pp.  Article Bhide, Amar V. Excess cash and unused debt capacity make up a company's financial inventory. Too little can be crippling. But too much costs money and invites takeovers. To determine the proper balance, CFOs must understand three factors: the cost of holding reserves, the risks that reserves protect against, and the needs that reserves may have to cover. HBS Number: 88302 Type: Harvard Business Review Article Publication Date: 5/1/1988 Subjects: Credit; Financing; Liquidation    You Have More Capital than You Think   Add   View  16 pp.  Article Author(s): Merton, Robert C. Publication Date: 11/01/2005 Product Type: Harvard Business Review Article HBS Number: R0511E Geographic Setting: Taiwan Industry Setting: Aircraft industry; Banking industry; Stock markets Subjects: Accounting & control; Comparative advantage; Derivatives; Equity capital; Financial strategy; Risk management; Value creation Academic Discipline: Finance Product Description: Senior executives typically delegate responsibility for managing a firm's derivatives portfolio to in-house financial experts and the company's financial advisers. That's a strategic blunder, argues this Nobel laureate, because the inventiveness of modern financial markets makes it possible for companies to double or even triple their capacity to invest in their strategic assets and competencies. Risks fall into two categories: either a company adds value by assuming them on behalf of its shareholders or it does not. By hedging or insuring against non-value-adding risks with derivative securities and contracts, thereby removing them from what the author calls the risk balance sheet, managers can release equity capital for assuming more value-adding risk. This is not just a theoretical possibility. One innovation — the interest rate swap, introduced about 20 years ago — has already enabled the banking industry to increase dramatically its capacity for adding value to each dollar of invested equity capital. With the range of derivative instruments growing, there is no reason why other companies could not similarly remove strategic risks, potentially creating billions of dollars in shareholder value. The possibilities are especially important for private companies that have no access to public equity markets and, therefore, cannot easily increase their equity capital by issuing more shares. The author describes how derivative contracts of various kinds are already being emp

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