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Strategic Finance? 7 Deadly Sins infect merger boom!

How many times have we heard about a failed marriage, scuttled by pride … greed … jealousy … envy … or other misdeeds flowing from the interminably deep well of human shortcomings? Too many, I’m sure, but those denizens of the 7 Deadly Sins brigade also besiege the world of mergers and acquisitions.

I haven’t written about this enough, I realize, as I read the M&A Losers in $10 Trillion Deal Binge …. providing yet one more example of the failed mergers that incite shareholder rebellions. We know the road to hell is paved with good intentions, so that doesn’t count for much. We expect CEOs and their directors to exercise their fiduciary responsibility to US by making sound decisions that are not scuttled by some array of the 7 Deadly Sins. (more…)

Hypnotizing Chickens?

I must admit that's a new phrase to me ... but it's a kissing cousin to "Death by PowerPoint", it seems. You'll enjoy the recent NY Times article about the U.S. military use of PowerPoint slides and how numbing it's become ... witness the slide that accompanies the article and…

He saw it coming ….

When someone tells you no one saw it coming ... you can usually assume they mean "I" didn't see it coming. By now, many of you are familiar with the story about Michael Burry, the Stanford Hospital surgeon who uncovered the flailing mortgage market and made a fortune betting against…

Business Finance | Does EBITDA Bury Its Own Dead?

Does EBITDA really tell you what you need to know?

“I have enough money to last me the rest of my life … unless I buy something.”– Jackie Mason

Does this sound like you?

Someone recently told me that they’re bored by finance. “Don’t distract me with strategic finance stuff, just let me run my business the way I know how.”

“No problem,” I said, “if you’ll just answer one question. What if the way you’re running it is causing increasing strain on your financial resources, cash flow is dwindling and you’re destroying market value every year. Do you care about any of that?”

“Of course, I do, but when sales start picking up again, all of that will go away and my EBITDA will return to normal levels.”

“Really?” I said. “How do you know that?”

“That’s the way it’s always worked.”

“Have you had any problems with your banking relationship?” (more…)

Vol. 62: Strategic Finance Fundamentals: It’s time!

“If I am through learning, I am through.”– John Wooden

Some of you will remember – back in the day – the E. F. Hutton commercials that intoned, “When E.F. Hutton speaks, people listen.” (Some of you are probably wondering – who is E.F. Hutton in the first place?) These days, the Sage of Omaha has taken their place and has the ear of many. When I finished re-reading Warren Buffett’s Annual Letter to Shareholders, it resonated with similar messages in a number of recent articles.

What is growth?

From a Wall Street Journal article on March 25 discussing Conoco/Phillips’ future plans: “We asked ourselves, ‘What is growth?’” an executive said. “Growth could be viewed as just growing absolute volumes, but we felt that in this challenging environment what’s really important is to grow the value of the company.”

Or this one, from an article in the April 5 edition of Business Week about the Sears/K-Mart merger: “Simplistic analyses … ignore the fact that negative or below-market returns on invested capital are as harmful to creditors as to shareholders.”

Finally, in Warren Buffett’s shareholder letter, (more…)

Not that I told you so … redux!

Remember this line? “There is strong and mounting evidence that the recovery act is putting people back to work,” a statement Vice President Joseph R. Biden Jr. made at a recent news conference in Washington.

In a recent post, Not that I told you so, I lamented the woeful results of the stimulus, and the lack of job creation results. Of course, today produced another painful reminder of this truth … that unemployment reached 10.2%, exceeding 10% for the first time since 1983!

In Where’s the Stimulus, I reported that while corporate profits were boosting the market, revenues for those same companies have fallen far more than the amount of the stimulus. While profits help fuel job growth and give companies some headroom to make those decisions, the lack of revenue growth eviscerates any need to rebuild your talent pool.

There is more evidence that the pols in Washington have no clue about how to stimulate job creation, (more…)

Say no to conventional wisdom

There's no better time to re-examine our assumptions about what works and what doesn't. How many times have we seen the power of unconventional thinking (quit using the tired "out of the box" thinking metaphor) ... and how frequently have our traditional beliefs been skewered as a result?Here's a story…

Incentives Rule!

In his fascinating book, Freakonomics, Steven Levitt remarked that “Incentives are the cornerstone of life” … yet so many companies don’t pay more than cursory attention to them, and invariably, only with respect to the most mundane, traditional sales compensation plans.

There’s probably nothing you can do to more powerfully drive the performance of your employees than to carefully consider your incentive plans. If you think yours are working beautifully and don’t need any attention, check in with Steven Levitt to see how easily they go astray. (more…)

Forecasting: Less Fun than Usual

CFO Magazine recently included an article entitled “Imperfect Futures“, describing the growing challenge of forecasting in an uncertain economy. It’s never been easy but maybe never before, this hard.
There is a valuable perspective in this article worth considering. (more…)