What does the financial viewpoint contribute to a bu … DF2-207-I
This technical note (TN) explains in detail the tools that can be used to analyze the financial feasibility and profitability of a business decision. Firstly, the TN emphasizes that managers must understand financial statements and their limitations. The statements do not aim to tell all the "truth" about the business; they aim to offer a reasonably honest approximation to certain aspects of it. Using Valparaiso SL as an example, readers are walked through an analysis of the profit and loss account and the balance sheet. The TN stresses that judging how well a company is managed solely on the basis of the information in the profit and loss account may lead us to form an incorrect view of what is going on in the company. Then the company’s profitability, funds flow and liquidity are analyzed and explained. Next, the cash flow statement is shown and readers learn that there are a number of different formats in which the information shown in the cash flow statement can be presented. The case wraps up by explaining that the criterion to judge whether a company is well-managed consists of analyzing its feasibility (measured in terms of the generation of net liquidity) and its profitability in real or financial terms. In sum, it is necessary to know what information is provided by the company's accounting statements, how this information relates to the business reality and what is or is not important for generating sustainable profitability.Academic Area:Finance
How to analyze the economic feasibility of a busines … DF2-209-I
This technical note takes a look at the feasibility of a joint venture, UTE Construmás, which was set up to build a parking lot. Readers must figure out how much money they need in order for the joint venture to be feasible and what financial resources must be provided over Construmás’s lifetime. In order to do so, the case walks readers through six stages to analyze its economic viability: establishing the time horizon of the forecast, determining the assumptions for the forecast, deriving the forecast profit and loss statement for the company, calculating the balance sheet associated with the forecast profit and loss statement, deducing the forecast cash flow situation, and drawing conclusions. Readers are provided with details and financial information for each stage. After going through the stages, a conclusion is reached about building the parking lot through a join venture and its profitability from an accounting point of view. However, it must also cover a peak liquidity requirement which cannot be solved by increasing turnover.Academic Area:Finance
INVESTING WITH TALENT DF2-123-I
This material, which is introduced with a biblical parable comparing today’s shareholders and managers to the protagonists of the parable, explores different alternatives to invest investors’ wealth. It explains the theoretical underpinnings of investing with talent and emphasizes that the manager must make investments that increase the investors’ wealth more than they could do on their own. Using the example of the Gemini project, the case walks students through the methods frequently used by finance directors to figure out if the Gemini project or an alternative would be the most profitable. To do so, it covers forecasts, free cash flow on operations, future value, NPV, IRR and ARR and then wraps up by analyzing the Gemini Project by applying the various methods.Academic Area:Finance
MATHEMATICS AND FINANCE DF2-122-I
Using practical examples and mathematical formulas, the tutorial explains how to calculate the interest rate, how to use the future value formula, how to calculate how much contracts are worth based on investment rates, what compound interest is, and how to calculate the value of any asset. It also looks at the distinction between value and price and how both are determined. It emphasizes that wealth does not depend on how much we paid for something but on how much money it is going to produce in the future and how the value of an asset does not depend on its face value but on the income you expect to get from it in the future. Quotes and examples from the Bible, philosophers and economists are included throughout the text so students understand that interest is something that has been around for a long time, even before money existed.Academic Area:Finance
ACCOUNTING AND FINANCE DF2-138-I
This technical note takes a look at how although profit has become the indicator par excellence of business management, the capacity to generate money is a better indicator of a company’s management. It delves into the financial information of two almost identical companies to try to judge their outlook. It proves that by only looking at the profit, you cannot see which one is better but by looking at the cash flow, one company produce money earlier than the other; with an interest rate of 7%, one company offers a value that is much higher than the other company despite the fact that the profits and accrued CF are the same in each case. The material explains that profit cannot be trusted because it is not always available and accounts are open to interpretation but cash is tangible and CF can be reinvested. In a nutshell, we must look more in depth into the profit and loss account and balance sheet to obtain the variation in cash on hand in order to see how much money we need to invest to maintain the business adequately, how much money is due to investors and how much is really paid to bankers and shareholders.Academic Area:Finance
Management control and national culture in Spain: A … CG2-026-i
The social, political and economic evolution of Spain in the last decades has favored a fast process of adoption of MAS (Management Accounting Systems). However, this evolution has pushed it through a number of condensed growth phases for which other Western countries had considerable more time available.
Particularly, two different periods can be considered as relevant to understand the increasing importance of MAS. Firstly, the period from 1939-1975 and secondly, the period from 1975-1995. Up until the mid-1970s a sheltered economy and a dictatorship made MAS not relevant for management purposes in Spanish organizations. Instead of this, a strong social control combined with non-formal organizational mechanisms of control prevailed. However, in the last two decades, as a result of a decreasing profitability and the weakening of the previous coercive mechanisms of social control, MAS have been increasing their importance in a large number of Spanish organizations. The improvement of economic conditions during the period 1985-90, the entry of foreign multinationals and the profound social changes have helped to institutionalize MAS.
Based on a previous essay (Amat, 1992) which is further developed, this article explores the interactions between MAS and their organizational and social context in Spanish firms through the description and analysis of three companies. Since the analysis suggested in this technical note is based on the evidence of three case studies, its conclusions are exploratory in nature.Academic Area:Cost Accounting & Management Control
Basic statistical methods MC021-022-I
This document introduces students to basic statistical models using step-by-step examples. It takes a look at how we can go from having sample data to data of the population by using two methods: confidence intervals and hypothesis testing. Students are then given practical examples of how these methods can be used. They are taken through each problem step by step and learn how to solve them using Excel functions.
The examples cover cases like how to determine the optimal number of data in a sample and testing hypotheses for more than two means.Academic Area:Operations & Supply Chain Management | Others
Quantitative decision analysis MC021-021-I
This technical note introduces students to quantitative methods and modeling techniques to facilitate decision making. In order to learn how to apply scientific methods to help them choose the best possible strategy to reach their goal. Using an example, students are taught how to make a decision using expected values in order to transform non-controlled variables into a numeric value.
Various examples are given so that students can learn how to make decisions based on different levels of risk aversion.Academic Area:Operations & Supply Chain Management | Others
The Business Plan: Analyzing the feasibility of a bu … GE2-108-I
Introduces students to the business plan and explains how it can be used to describe and analyze a business opportunity, to examine its feasibility and to develop strategies to turn an opportunity into a business project. It also explains how it must be adapted based on the audience, the objective and its degree of development and how it is a document that is “never finished.”
A generic model of a business plan is suggested and then there is a detailed description of the executive summary and each part of the plan including the introduction, project champions team, business model, sector analysis, strategy for implementation of the business model, legal structure, economic-financial analysis, risks and mitigation and conclusions.Academic Area:Entrepreneurship