A Refresher on Net Present Value
Harvard Business Review
NOVEMBER 21, 2014
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The Refresher: Net Present Value
Harvard Business Review
MARCH 23, 2017
Next time you’re deciding about a big investment, NPV can help you make a more informed decision.
The Secrets to Building a Lucky Network
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JULY 9, 2012
The net present value and strategic fit of a given relationship or initial introduction in one's Lucky Network might be foggy at best, but unintended benefits often manifest for those who embrace relationships with openness.
Debt and the Future of the U.S.
Harvard Business Review
DECEMBER 22, 2010
Consider, for example, that the estimated net present value of obligations under the Social Security system is approximately $8 trillion. But closer inspection of government data reveals that these figures grossly understate both the current deficit and level of debt.
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16 How Marketers Can Avoid Big Data Blind Spots
Harvard Business Review
DECEMBER 23, 2013
These estimates can then help determine the Net Present Value (NPV) of the long term effect of marketing in terms of future sales. Significant cuts to TV spend as suggested by traditional econometric modeling would have reduced the net present value of the brand’s profit. customer surveys).
Marketing 14
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Only the CEO Can Make the Big Bets
Harvard Business Review
NOVEMBER 7, 2011
And using net-present-value estimates for "beginning" ideas is nuts. Because they know they would get laughed out of the room if they were to advocate for a hunch. Skating to where the puck is now is not being customer-driven. It's being customer-reactive. And yet we continue to do the same thing and expect different results.
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Why Some Digital Companies Should Delay Profitability for as Long as They Can
Harvard Business Review
MAY 4, 2017
As long as there are strong increasing returns to create , it’s possible that the net present value of my profit harvesting is indefinitely larger if deferred to the future. The Refresher: Net Present Value. Today, AWS is a much more valuable business for the company’s long-termism. So is Google.
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How to Choose the Ideas Your Company Should Invest In
Harvard Business Review
JANUARY 11, 2012
Note what isn't part of the decision: an idea's net present value or return on investment. Teams should certainly develop their best guesses about how the idea will make money, but leaders shouldn't place too much emphasis on financial metrics for early stage ideas.
Company 16
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Rethinking Valuation So You Don't Miss a Good Deal
Harvard Business Review
DECEMBER 2, 2010
The higher level of uncertainty associated with H2 and H3 necessitates an updated valuation methodology that takes into account more than the net present value (NPV) of the target. We call this the Opportunity Value (OV) of an asset. This is where Opportunity Engineering comes into play.
NPV 15
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Still Many Ways to Skin a Capital Cost
Harvard Business Review
MARCH 10, 2011
To make sure they're comparing apples to apples, they discount those future cash flows to arrive at their net present value.
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A Refresher on Payback Method
Harvard Business Review
APRIL 18, 2016
There are a variety of ways to calculate a return on investment (ROI) — net present value , internal rate of return , breakeven — but the simplest is payback period. A Refresher on Net Present Value. For that reason, net present value is often the preferred method.
Warren Buffett's 2010 Shareholder Letter: What to Expect
Harvard Business Review
FEBRUARY 24, 2011
But why compare apples (book value) to oranges (share price and dividends)? Buffett explains that book value is the best proxy for "intrinsic value," the net present value of all estimated future cash flows. Consider that since 1965, Berkshire's book value grew 434,057% and the S&P index grew only 5,430%.
Letter 15
15 A Refresher on Internal Rate of Return
Harvard Business Review
MARCH 17, 2016
There are a variety of methods you can use to calculate ROI — net present value , payback, breakeven — and internal rate of return , or IRR. According to Knight, it’s commonly used by financial analysts in conjunction with net present value, or NPV. A Refresher on Net Present Value.
10 Reasons Why Every Manager Should take a Finance Course
Great Leadership By Dan
OCTOBER 21, 2013
Caution: when employees feel like owners, no more wasting money on expensive furniture, management boondoggles, or projects with a poor net present value. You can help them feel like owners too. They will call you on it. You’ll be able to hold your own in management and board meetings. Yes, you too can speak like a CFO!
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Will You Be Writing Off Your Investment in Egypt?
Harvard Business Review
FEBRUARY 7, 2011
Anyone who has had to make the argument for an investment knows the basic tool involved: a Net Present Value (NPV) calculation. The overall value of a foreign investment is equal to the NPV of the expected stream of profits for the life of the investment.
NPV 14
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The Most Common Reasons Customer Experience Programs Fail
Harvard Business Review
DECEMBER 28, 2016
Customer Lifetime Value : This is the net present value of all future customer revenues with account for attrition and your discount rate. Share of wallet is the ultimate measure of how they spend their money when the ultimate point-of-sale (POS) decision occurs. Study the drivers and barriers of both to optimize here.
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14 Why Is an App Worth as Much as a Small Oil Field?
Harvard Business Review
FEBRUARY 24, 2014
While on the surface, the dirty business of fossil fuels is nothing like Silicon Valley, many in the oil business have moved beyond the standard net present value (NPV) model for assessing the merit of investments. What if I suggested that the best place to look for answers could be the shale oil fields of North Dakota?
NPV 11
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How to Quantify Sustainability’s Impact on Your Bottom Line
Harvard Business Review
SEPTEMBER 13, 2017
We found that sustainable and deforestation-free practices created significant financial benefits for all players in the industry’s value chain. Specifically, our analysis found that the net benefits to ranchers ranged from $18 million to $34 million (12% to 23% of revenues) in net present value projected over 10 years.
Why You Should Crowd-Source Your Toughest Investment Decisions
Harvard Business Review
OCTOBER 16, 2013
Most companies – including the movie studios in Hollywood – over-rely on basic tools like discounted cash flow and net present value. But it is possible to significantly improve your odds by understanding which decision-support tools work best for which decisions.
What If Investors Who Held Their Shares Longer Got More Voting Power?
Harvard Business Review
APRIL 27, 2017
The Refresher: Net Present Value. An activist hedge fund, for example, can exert massive pressure to change the strategy and/or investment approach of the company based on its ownership of a sufficient share of the company’s equity. Related Video.
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Why We Need to Update Financial Reporting for the Digital Era
Harvard Business Review
JUNE 8, 2018
Business students have traditionally considered net present value, payback period, and hurdle rates as necessary tools to determine which project to select. Some of these ideas contradict traditional financial thinking whereas others seem highly controversial or pessimistic.
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8 How CMOs Can Get CFOs on Their Side
Harvard Business Review
NOVEMBER 25, 2013
CFOs are more interested in capital investment estimates, net present values, and a clear outline of the trade-offs of any investment. For instance, CMOs often focus on brand awareness, TV ad impressions, or share of voice in the market, which do not easily translate into financial impact.
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4 Assumptions About Risk You Shouldn’t Be Making
Harvard Business Review
AUGUST 15, 2016
Most executives know that the present value of an investment comes from projecting its cash flows and discounting those numbers into today’s dollars. The general rule is projects with positive net present values should get funded, and those with negative ones shouldn’t.
Stop Focusing on Profitability and Go for Growth
Harvard Business Review
MAY 1, 2017
In these circumstances, strategies that generate faster growth create more value for most companies than those that improve profit margins. The Refresher: Net Present Value. Related Video. Next time you're deciding about a big investment, NPV can help you make a more informed decision.
ROE 15
15 An Unexpected Lesson from Mandela: Why Context Matters
Harvard Business Review
DECEMBER 11, 2013
These were engineers and network planners; surely, they understood economics and net present value analysis. Still frustrated, I walked the corridors of South Africa Telkom and ran into the old guard. I told them my story. They agreed that the Mandela proposal was nonsense.
What Xerox PARC Learned About Executing on Open Innovation
Harvard Business Review
OCTOBER 15, 2012
As innovators engage with the market through the MVP, they learn valuable information to help them refine the product-market fit and better understand and further build for the value proposition. Net Present Value ). This iterative approach is consistent with "real options" (vs.
The Big Trends Changing Community Development
Harvard Business Review
DECEMBER 2, 2013
Managers have embraced this kind of thinking not because they have taken a “be nice” pill, but rather because they see that truly effective community programs reduce community risk, and thereby increase the net present value of their assets in developing and fragile states.
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9 How to Improve Your Finance Skills (Even If You Hate Numbers)
Harvard Business Review
MARCH 31, 2017
But having a grasp of terms like EBITDA and net present value are important no matter where you sit on the org chart. The Refresher: Net Present Value. If you’re not a numbers person, finance is daunting. How can you boost your financial acumen? And who’s in the best position to offer advice?
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The Most Common Mistake People Make In Calculating ROI
Harvard Business Review
APRIL 9, 2015
You can use one or more of four ROI calculation methods: payback, net present value , internal rate of return, and profitability index. The finance people determine hurdle rates by looking at the company’s cost of capital, at the risk involved in a given project, and at the opportunity cost of forgoing other investments.
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8 When It Pays to Think Like a Finance Manager
Harvard Business Review
MARCH 23, 2015
Do you think they’re going to do a net present value (NPV) analysis that shows they don’t need that computer? Joe Knight. Add to Cart. Everyone always wants new equipment — new computers or other hot technologies. Of course not.
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Hospital Budget Systems Are Holding Back Innovation
Harvard Business Review
MARCH 29, 2018
Despite a one-year payback period and a highly positive net present value (NPV) from this investment, the department will often reject the attractive opportunity. Consider the opportunity to raise spending in Year 1 by $100,000 to acquire technology that would decrease spending each year thereafter by $100,000.
What Private Equity Investors Think They Do for the Companies They Buy
Harvard Business Review
JUNE 18, 2015
For instance, despite the prominent role that discounted cash flow valuation methods play in academic finance courses, few PE investors use discounted cash flow or net present value techniques to evaluate investments. Rather, they rely on internal rates of return and multiples of invested capital.
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8 A Refresher on Price Elasticity
Harvard Business Review
AUGUST 21, 2015
Once you do that, you can adjust price up or down to better represent the level of value you are providing to your customers. Read refreshers on net present value , breakeven quantity , debt-to-equity ratio , and cost of capital.
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An HBR Refresher on Breakeven Quantity
Harvard Business Review
JUNE 22, 2015
. “It’s one of the more popular ways that managers calculate marketing ROI,” says Avery, pointing out that other common ones include calculating the investment payback period, calculating an internal rate of return, and using net present value analysis.
Match Your Innovation Process to the Results You Want
Harvard Business Review
SEPTEMBER 10, 2012
When forced to present familiar metrics for truly out-of-the-box "beginning" ideas, work teams develop what our friend Jay Paap calls "Imaginary Numbers."
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16 Shape Strategy With Simple Rules, Not Complex Frameworks
Harvard Business Review
SEPTEMBER 27, 2012
To prioritize projects, for instance, the ALL team could have forecast future cash flows for every potential investment and ranked all proposals on the basis of their net present value. But like most complicated models, that approach would have had many disadvantages relative to simple rules.
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Is Your Business Biased Against Innovation?
Strategy Driven
SEPTEMBER 9, 2011
Many conventional metrics we use to estimate value are based on faulty assumptions. Net present value [NPV] is a case in point. Many people do not typically think of metrics and accounting as roadblocks to innovation, yet you call these out as potential problem areas.
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