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HBX Business Blog

Creating Value: Amazon's Acquisition of Whole Foods

Posted by Brian Misamore on June 23, 2017 at 5:20 PM

vegetable display at a grocery store

On June 16, Amazon announced that they would be purchasing Whole Foods for $13.7 billion - approximately 27% higher than its current value in the market. After the initial shock wore off, many people began to speculate about whether this was a good decision or not.

In finance, we think about creating value as generating returns in excess of a firm's cost of capital - in other words, for projects and decisions to generate more cash flow over time than they cost today to implement, discounted back to the present.

That's a mouthful of a definition, but even the best projections can't necessarily help us understand if our decisions were successful. This is one place where the stock market – the crowdsourced opinions of thousands of analysts – can be of assistance.

Imagine a market value balance sheet; on the left side, the Assets side, are the market value of the firm's cash and their operating assets. On the right side, to balance, are the market value of the firm's debt and the market value of their equity. Now imagine that the firm makes an investment - they use $1 million dollars in cash and make a $1 million investment in a new asset. Accounting will shift the balance from cash to operating assets and show no change. But did the value of the firm change?

For this, we can look at the other side of the balance sheet - the financing side. Unless new debt is taken on as part of the project, the debt portion should stay the same. Which means that any decision that creates or destroys value for the firm will show up immediately in the market value of equity, which we call "market capitalization." The market capitalization tends to reflect the consensus opinion of decisions instantly, as all of those thousands of analysts respond to firm announcements in real time.

We can think of the purchase of Whole Foods as an investment decision - Amazon took a certain amount of cash and purchased an asset. Was that a value creating or value destroying decision?

In acquisitions, value creation comes from synergies, or ways in which the two companies together are worth more than they are individually. Sometimes, the acquiring company overpays for the acquisition, giving most or all of the synergies to their target. Sometimes they overpay by so much that they destroy value. So what about Amazon? How did they do?

For this, we can look at the market value of their equity. On Thursday, June 15, Whole Foods had a market capitalization of $10.6 billion and Amazon had a market capitalization of $460.9 billion. By the end of trading on Friday, Whole Foods' market capitalization was $13.7 (which makes sense, that's the price they were being acquired at) and Amazon's was $472.1 billion.

That means that the market thinks this acquisition created $14.3 billion in value through synergies (the total combined increase across the two companies) and the synergies were split up by giving $3.1 billion to Whole Foods shareholders and $11.2 billion to Amazon shareholders. 

Clearly, the market felt this was a really good decision (and the market capitalizations of the two companies continued to rise over the next week). In fact, since the synergies at $14.3 billion are more than the purchase price of Whole Foods at $13.7, it can be said that the market thinks Whole Foods is worth twice as much as part of Amazon than it is alone. That's incredible - and it's how the market consensus can tell firms, instantly, whether their decisions created value.

Want to better understand finance? Interested in developing a toolkit to make smarter financial decisions? Learn more about the HBX course, Leading with Finance.

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About the Author


Brian is a member of the HBX Course Delivery Team and was the lead content specialist for the HBX Leading with Finance course. He is currently working to build courses on entrepreneurship, management, and corporate social responsibility. He is a veteran of the United States submarine force, has a background in the insurance industry, and holds an MBA from McGill University.


Topics: HBX Finance

How to Price a Bond: Breaking Down the Financial Jargon

Posted by Brian Misamore on June 2, 2017 at 3:25 PM


In finance, we say that the value of something today is the present value of its discounted cash flows. We use this to value everything, and finance courses (like ours) give examples of valuing projects and businesses.

What is a Bond?

A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are debtholders, or creditors, of the issuer.

Source: Investopedia.com

But what about bonds?

Turns out, bonds can be valued exactly the same way. Bonds, however, can be a bit obscured by finance jargon, so we'll need to break through a bit to figure out their value. 

Let's take an imaginary bond: it has a face value of $1000, an annual coupon of 3%, and a maturity date in 30 years. What does all that mean?

What is means is that the company or country that owes the bond will pay the bond holder 3% of the face value of $1000 ($30) every year for 30 years, at which point they will pay the bond holder the full $1000 face value.

That gives us our cash flows. We have a series of 30 cash flows, one each year of $30, and then we have one cash flow, 30 years from now, of $1000.

Now we need to use our discounting formula:

Cash Flow ÷ (1+r)t

We have the cash flows and we have the number of years for each of them (called "t" in that equation). We need the "r", which is the interest rate. Which should we use? What we do is we use the current interest rate for similar 30-year bonds today. Since we're making up these numbers for the purpose of this example, it doesn't really matter what we use - we can say it's 5%.

So now we can value the various cash flows. First, we have the coupon payments:

30 ÷ (1+.05)1 + 30 ÷ (1+.05)2... + 30 ÷ (1+.05)30

And then we have the final face value payment, in thirty years:

1000 ÷ (1+.05)30

Together, these total the price - $692.55. This price will ensure that the bond holder receives an annual return of 5% over the life of the bond.

Now that we have our price, we can play with some of our assumptions to see how things change. What if the prevailing market interest rate were 4% instead of 5%? In that case, the price of the bond would be $827.08. If it were 6% instead of 5%, the price would be $587.06. So, one thing to remember is that the price of a bond is inversely related to the interest rate - when interest rates go up, the price of bonds goes down, and vice versa. When the price of the bond is beneath the face value, we say that the bond is "trading at a discount." When the price of the bond is above the face value, we say the bond is "trading at a premium."

This can be important if you don't want to actually own the bond for 30 years. If you want to hold the bond for 5 years, then you'd receive $30 per year for 5 years, and then you'd receive that price of the bond at that time, which will depend on the current interest rates at the time. This is why, while some long term bonds (like government Treasury bonds) can be considered "risk free" over their full lifetime, they will often vary a great deal in value on a year-to-year basis.

Want to better understand finance? Interested in developing a toolkit to make smarter financial decisions? Learn more about the HBX course, Leading with Finance.

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About the Author


Brian is a member of the HBX Course Delivery Team and was the lead content specialist for the HBX Leading with Finance course. He is currently working to build courses on entrepreneurship, management, and corporate social responsibility. He is a veteran of the United States submarine force, has a background in the insurance industry, and holds an MBA from McGill University.

Topics: HBX Finance

Spring Cleaning Your Personal Budget

Posted by Jackie Merriam on May 26, 2017 at 1:32 PM

AdobeStock_Budegt Clean [Converted]-835332-edited.png

Whether you track every penny you spend, or just periodically check your bank account and credit card balances, everyone maintains a budget to some extent. You could use an app, a spreadsheet, or keep track in your head, but it’s important to know how much money you have coming in, and how much you spend, for a given period of time.

Regardless of how you keep your budget, it is a good idea to evaluate your financial position at least once a year and think about how you could make better use of your money. These tips will help you to evaluate your habits, lower your spending, and improve your planning for the future.

Evaluate the Balances in your Accounts

There are three types of cash accounts that people should have: 

  • Checking Account 
    Your checking account should only have enough to cover your monthly expenditures. You should not be spending more than you make, so a general rule of thumb is to maintain the equivalent of one month’s pay in this account. This account balance will fluctuate a lot because there is constantly money going in and coming out, but this account should not be consistently growing over time, because it doesn’t earn interest. If you find that this account has grown over time, you should consider moving some of the funds to a savings account.
  • Emergency/Liquid Savings 
    Think of this as your Rainy Day Fund, used to keep a cash buffer in case of an emergency (i.e. losing your job) or to save money for known future expenditures, like a down payment for a house. These funds should be kept in interest bearing, yet liquid accounts, such as a simple interest bearing savings account, where you can access the money at a moment’s notice, without penalty. You should keep between 3-9 months’ worth of expenditures in this account for emergencies in addition to any money you are saving for a specific future event.
  • Long-Term/Illiquid Savings 
    These are generally retirement accounts that don’t allow you to withdraw money early, or that would incur a penalty if you did. You should be putting some amount into these accounts monthly—every little bit helps!

Review Auto-Renewal Payments

We are creatures of habit, and it’s important to know how much our habits are costing us. We all have things that we pay for on a regular basis that are automatically deducted from our bank account or charged to our credit cards. This can include subscriptions and memberships that give you access to certain benefits (such as app subscriptions, video streaming services, Amazon Prime, gym memberships, etc.). 

One survey estimates that the average consumer has 11 of these charges each month. While the individual amounts are usually small, they add up quickly.

To clean these up, grab your most recent bank and credit card statements and mark all of the items that are recurring or auto-renew. Add them up—you may be surprised by the total! As you go through these, ask yourself a series of questions about each:

  • Did I cancel this? Is this what I ordered?
    Try to find confirmations of your cancellations and call the company to investigate why you are being charged. They should be able to offer a refund if you are being charged incorrectly.
  • How much do I actually use the product/service? Is it worth it?
    For some payments, it might help to think about a per-day or a per-use cost. For example, if you pay $15 per month for a photo editing software, but you only use it to edit 2 photos per month, you are paying $7.50 per photo. Another way to think about this is to put it in yearly terms; if you kept this up you would be paying $180 per year to edit 24 photos.

    For payments that get you access to certain benefits, especially those that are intended to save you money in the long term, determine if the benefit you received was greater than the cost. A great example of this is Amazon Prime. Some of these memberships keep track of all your savings, and you may also be able to access this information in your online account. If the amount you saved is less than the cost you paid to get the service, it’s probably not worth it!

    For items that auto-renew at intervals longer than one month, put a reminder on your calendar a few weeks before it renews. When you get the reminder, think about whether or not you actually use what you are paying for, and decide to renew or cancel it before you get charged.

  • Could I be paying less?
    Especially for items where you pay on a monthly basis, like your cell phone, internet, or cable, check to see if you could save money by changing your payment plan. Many companies offer discounts to people who pay for 6 months or one year at a time, as opposed to one month at a time. If it’s something you have determined is worth it to you, see if you could take advantage of these savings!

    The answers to these questions are going to be different for every person. However, don’t make the mistake of thinking you will change your patterns—if you aren’t using something now, you probably won’t use it in the future!

Don’t forget about your infrequent expenses

Most people have a pretty good idea of their regular expenses that are frequently recurring. You know (or you should know!) how much you spend every month on rent, student loan payments, and car payments. You also probably know roughly how much you spend each month on necessities like food, utilities and gas. 

However, many people struggle to plan for big expenses that are more infrequent, but still fairly certain to occur, such as:

  • Car or home insurance, usually paid once or twice annually
  • Somewhat predictable car and home repairs
  • Taxes (if you are expecting a refund don’t forget to budget for that too!)
  • An annual trip home for the holidays

Know your patterns and don’t forget about these less frequent expenditures. For example, if you are expecting to have to purchase new tires for your car in the next four months, start saving a little money for that today. It’s much easier to save a little bit at a time for these expenses than to have to deduct it from your budget all at once.

Reevaluate your long-term savings plan

No matter how old you are or where you are in your career, you should be saving for retirement. When it comes to building your savings, time is your friend. The longer you are able to save, the more your savings will be able to grow, and the effects in the future are exponential. 

An easy way to do this is to ensure that you are taking advantage of everything that your employer offers. Employer-sponsored plans are beneficial for many reasons, including certain tax breaks and deductions straight from your paycheck.

Here are a few things to consider with employer-sponsored retirement plans:

  • Some employers require you to “opt-in” to the retirement plans. Make sure that you do this! If you don’t opt in, you could go months or years without contributing anything to your retirement plan.
  • Many employers offer a matching program where they will match any contributions you make to a retirement plan, up to a certain amount. You should contribute at least as much as this limit so that you are getting the full benefit of the match.
  • You set the amount or percent of your pay that goes to the plan. Determine if you can increase your contribution, even an additional 1% per paycheck can make a big difference!

Every employer offers different things, so talk with an HR or benefits officer at your employer to get the full scope of the benefits. It may also be worth it to speak with a financial advisor about other savings options that you might be able to take advantage of, especially if you feel that you employer doesn’t offer exactly what you are looking for.

Want to learn more about Finance, Accounting, Economics and Analytics?

Learn more about HBX CORe

About the Author

Jackie Blog Round.pngJackie is a member of the HBX Course Delivery Team and currently works on the Financial Accounting course for the Credential of Readiness (CORe) program. She also works on the Leading with Finance Course, and is working to design and develop a course in Entrepreneurship for the HBX Platform.

Jackie holds a BSB in Accounting and Finance, and a Masters of Accountancy, all from the University of Minnesota. In her free time she enjoys cheering on her favorite Minnesota sports teams and baking.

Topics: HBX Finance, HBX tips, Financial Accounting

Exploring Company Valuation: Tesla, Ford, and GM

Posted by Brian Misamore on April 21, 2017 at 10:38 AM


Green electric car parked at a charging station

Earlier this week, we analyzed reports of Tesla's market capitalization passing both Ford Motor Company and General Motors, and found that these eye-catching headlines can mostly be explained by the different capital structure of Tesla compared to its older rivals.

Today, we’re taking things a step further and discussing why Tesla might be valued so highly, despite being a very small company. To do this, we’ll need to look at the ratio of Enterprise Value (a finance term meaning the total operational value of the company) to EBITDA, an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization.


When examining earnings, financial analysts generally don't like to look at the raw net income profitability of a company because it's manipulated in a lot of ways by the conventions of accounting, and some of them can really distort the true picture.

To start with, the tax policies of a country seem like a distraction from the actual success of a company - they can vary across countries or across time, even if nothing actually changes in the operational capabilities of the company. Second, Net Income subtracts interest payments to debt holders, which can make companies look more or less successful based solely on their capital structures. That doesn't seem to make sense - so we add both of those back to arrive at EBIT (Earnings Before Interest and Taxes), which we call operating earnings.

Next, we look at depreciation and amortization. In normal accounting, if a company purchases equipment or a building, it doesn't record that transaction all at once - it charges itself an expense called depreciation over time. But the company isn't really spending any money on that depreciation; it isn't real. Amortization is the same thing as depreciation, but for things like patents and intellectual property; once again, no actual money is being spent on this expense.

In some ways, then, depreciation and amortization can take the earnings of a rapidly growing company look worse than a declining company, and that's definitely not right. This sort of distorted picture especially happens to companies like Amazon and Tesla.

Now that we understand how we arrive at EBITDA for each company, we can look at these ratios.

According to the Capital IQ database, Tesla has an Enterprise Value to EBITDA ratio of 36x. Ford's is 15x, and GM's is 6x. So what do these ratios mean?

Present Value of a Growing Perpetuity Formula

One way to think about these ratios is as a part of the growing perpetuity equation. A growing perpetuity is a kind of financial instrument that pays out a certain amount of money every year, and that amount of money grows each year as well. Imagine an annual stipend for retirement that needs to grow every year to match inflation. The growing perpetuity equation allows us to find out today’s value for that sort of financial instrument. Here’s the equation:

Value = Cash Flow / (Cost of Capital - Growth Rate)

So, in our retirement example, someone who wanted to receive $30,000 every year, forever, with a discount rate of 10% and an annual growth rate of 2% (to cover expected inflation) would need $375,000 [30,000/(10%-2%)]. That’s the present value of that arrangement.

What does this have to do with companies? Well, we can imagine the EBITDA of a company as a growing perpetuity paid out every year to the capital holders (both debt and equity) of the company. If a company can be thought of as a stream of cash flows that grow each year, and we know the discount rate (which is that company’s cost of capital), we can use this equation to quickly value the enterprise value of a company.

To do this, we’re going to need some algebra to convert our ratios to this formula. Let’s take Tesla, with an Enterprise to EBITDA ratio of 36x. That means the Enterprise Value of Tesla is 36 times higher than its EBITDA. 

If we look at the growing perpetuity formula and use EBITDA as the Cash Flow and Enterprise Value as the value we’re trying to solve for in this equation, then we know that whatever we’re dividing EBITDA by (the Discount Rate – Growth Rate) is going to have to give us an answer that is 36 times what we have in the numerator. 

Enterprise Value = EBITDA / (1/RATIO)

In other words, the denominator needs to be 1/36, or 2.8%. If we repeat this example with Ford, we would find a denominator of 1/15, or 6.7%. For GM, it would be 1/6, or 16.7%.

The Power of Growth

Plugging it back into the original equation, we know that the percentage is equal to the Cost of Capital - Growth Rate, so we could imagine that Tesla might have a cost of capital of 20% and a growth rate of 17.2%. Or it might have a cost of capital of 13% and a growth rate of 10.2%.

The ratio doesn't tell us exactly, but one thing it does tell us is that the market believes that Tesla's future growth rate will be very close to its cost of capital (unsurprisingly, Tesla's first quarter sales were 69% higher than this time last year).

If we repeat this with GM, we might imagine a cost of capital of 20% and a growth rate of only 3.3% - much less optimistic than Tesla.

In finance, growth is powerful. It explains why, despite being a much, much smaller company, Tesla carries a very high enterprise value. The market has taken notice that, though Tesla is much smaller than Ford or GM in total enterprise value and revenues today, that may not always be the case.


About the Author

Brian is a member of the HBX Course Delivery Team and is currently working on the new Leading with Finance course for the HBX platform. He is a veteran of the United States submarine force and has a background in the insurance industry. He holds an MBA from McGill University in Montreal.

Topics: HBX Insights, HBX Finance

Is Tesla Really Bigger than Ford or GM? Understanding Market Capitalization

Posted by Brian Misamore on April 18, 2017 at 5:16 PM

Tesla Blog Image.png

Since earlier this month, when Tesla's market capitalization passed both Ford Motor Company and General Motors, news organizations have been trying to figure out what to make of the market's consensus. Is Tesla, a young, electric-car manufacturer, really worth more than these behemoth, hundred-year-old automotive powerhouses? How can a company like Tesla with a reported $7 billion in revenue for 2016 possibly be worth more than GM, with $166 billion in revenue?

There are a few things to unpack here, from what market capitalization actually means, to differing capital structures, and reliance on equity.

Market Capitalization

Market capitalization is one of the simplest measures of a publicly traded company's value, calculated by multiplying the total number of shares by the present share price.

Market Capitalization = Share Price x Total Number of Shares

One of the shortcomings of market capitalization is that it only accounts for the value of the equity of the company, while most companies are actually financed by a combination of debt and equity. 

In this case, debt represents investments by banks or bond investors in the future of the company; these liabilities are paid back with interest over time. Equity represents shareholders who own stock in the company, and hold a claim to the future profits of the company. 

So instead of analyzing the companies' market capitalization, let's a look at their enterprise values, a more accurate measure of company value which takes into account these differing capital structures.

Enterprise Values

To find the enterprise value, we’ll combine each company's debt and equity, and remove the amount of cash the company is currently holding in their bank accounts, since that’s not part of their actual operations.  

Enterprise Value = Debt + Equity - Cash

Tesla currently has a market capitalization of $50.5 billion. On top of that, their balance sheet showed liabilities of $17.5 billion (this isn't the market value of their debt, which would be ideal, but it's close enough for this comparison). The company also has around $3.5 billion in cash in their accounts, giving Tesla an enterprise value of approximately $64.5 billion.

We can repeat this exercise for Ford and GM. Ford has a market capitalization of $44.8 billion, outstanding liabilities (again, from their accounting balance sheet) of $208.7 billion, and a cash balance of $15.9 billion, leaving an enterprise value of approximately $237.6 billion. GM has a market capitalization of $51 billion, balance sheet liabilities of $177.8 billion, and a cash balance of $13 billion, leaving an enterprise value of approximately $215.8 billion. 

Hopefully this understanding of enterprise value will provide some context to better understand the sensational headlines you’ve seen in recent weeks. In short, while Tesla's market capitalization is higher than both Ford and GM, Tesla is also financed more from equity. In fact, 74% of their assets have been financed with equity while Ford and GM have capital structures that rely much more on debt (17.6% of Ford's assets are financed with equity, and 22.3% of GM's).

When looking at the enterprise value of each company, it's clear that Ford and GM are still far larger companies than Tesla.

Why stop here? In our next post, we'll look at a key valuation ratio for the three companies to better explain why Tesla's market capitalization might be so high, even though the company is so much smaller than its rivals.


About the Author

Brian is a member of the HBX Course Delivery Team and is currently working on the new Leading with Finance course for the HBX platform. He is a veteran of the United States submarine force and has a background in the insurance industry. He holds an MBA from McGill University in Montreal.


Topics: HBX Finance

HBX Student Spotlight: Doug Kinsey

Posted by Doug Kinsey on February 23, 2017 at 11:24 AM

Doug Kinsey stands in front of Baker Library on the HBS campus

Doug Kinsey is a Partner at Artifex Financial Group and an HBX aficionado. We sat down with him to learn more about his experiences in some of our HBX programs, most valuable takeaways, and advice for others.

What drew you to HBX?

Doug holding a fish he caught

Although I've spent most of my career in the financial services industry, and have had the opportunity to be associated with some great companies in the field, I've never grown tired of learning more. A career in finance is at once very demanding and very rewarding, if you apply yourself and seek knowledge. My personal path has led me to the area of personal financial planning and investment consulting. I started my own firm with a partner 10 years ago and we've been fortunate to grow at a pretty rapid pace. Along the way, I've earned various industry certifications and taken tons of continuing education.

When I learned of Harvard's new educational initiative, HBX, I signed up right away. So far I've completed Disruptive Strategy, CORe, and am almost finished with Leading With Finance. All have been taught by world-class professors and an innovative technology platform that encourages participation as you progress through each course.

Why did you decide to sign up for Leading with Finance?

I want to regularly sharpen my skills in the area of finance and financial analysis, as I am responsible for managing client investment portfolios at my firm (in addition to other duties). Given my recent experience with other HBX programs, I am confident that this one will add value to my skills and perspective.

I recently participated in an HBX Live session with professor Desai and we not only discussed some of the key course concepts in a brief case study, but Dr. Desai gave us a sneak peak at his upcoming book, which incorporates finance concepts into everyday life. This hits home for me, as a lot of my work involves making finance work for everyday people, who may not have much of an interest in my chosen field of endeavor.  

What was your favorite part of the program?

Doug and his hockey team pose for a team picture

My favorite part of all of the HBX programs is the case study approach and seeing the concepts as described by people in the real world.  I learn best when applying and observing the concepts the professors are teaching.

I've worked on case studies with classmates as far away as Russia and the Netherlands. I've met others in my cohort online and at the Harvard Business School campus in Cambridge. I've communicated with professors and colleagues during the live sessions, and I feel that I've gained an immense amount by interacting with people from all over the world, not only in the classroom, but through dedicated Facebook pages and offline conversations.

How are you applying what you've learned in Leading with Finance?

Doug and his two sons

I've already found that my perspective has changed on several of the principles, like Weighted Average Cost of Capital, and that I am viewing valuation a bit differently.

I can honestly say that no other post-graduate program that I've been a part of has been as enlightening for me. I've even been able to put new concepts to use almost immediately, and the coursework has helped me see things from a different perspective. The way HBX weaves case studies and real-world applications into the concepts is truly a game-changer for those of us who haven't been exposed to it before.

Any advice for people who will be taking Leading with Finance?

Go for it! Dr. Desai has a great teaching style and the course is extraordinarily valuable for experienced practitioners and people new to finance. 

I tell everyone I know about this program, as it is an undiscovered value, and one that will return to you tenfold what you put into it.

headshot of Doug Kinsey

About the Author

Doug Kinsey is a Partner at Artifex Financial Group and has over 25 years of experience in the financial services industry. In addition, he writes about investing for Kiplinger. You can see his posts here.

Topics: HBX Student Spotlight, HBX Finance

Get to Know Professor Mihir Desai

Posted by HBX on January 24, 2017 at 9:55 AM

A still of professor Mihir Desai teaching his HBX Leading with Finance online course

We sat down with Harvard Business School and HBX Leading with Finance Professor Mihir Desai to talk about finance, dream vacations, and his penchant for British crime dramas.

What’s the biggest misconception about finance?

There are really two big misconceptions - the first one is that finance is rocket science. That misconception grows out of the tendency of finance folks to use jargon that intimidates more than it illuminates - often that jargon just reflects that they don’t know how to talk about it simply. Finance is really intuitive, and it’s important for people to know that in order to succeed as professionals and for all of us to succeed as citizens.

The second misconception, which is growing in importance, is that finance is evil. For many reasons, finance has been demonized – and sometimes that reputation has been well-earned. But, the reality is that finance is a really important tool for improving society; the appropriate allocation of capital through markets, institutions and firms can have enormously beneficial consequences for society.

So, we have to make the practice of finance better but demonization of finance doesn’t help that. Part of my goal in teaching Leading with Finance is to fight against those misconceptions.

Professor Desai walking through Baker Library on the Harvard Business School campus

What’s your favorite part of your job?

I’m fortunate as it’s easier to identify my least favorite part of my job since many parts of my job are wonderful. The only thing I don’t like is grading. Aside from that, it’s hard to choose my favorite. Broadly, both the production and dissemination of ideas are enormously rewarding. Producing ideas is a really creative, demanding, and addictive activity that has intrinsic rewards but also extrinsic ones. Seeing your work become part of the larger progression of knowledge is enormously gratifying.

On the dissemination side, the challenge of explaining complex things is also really demanding and rewarding - and, of course, the thought that we might just slightly change the trajectory of someone’s intellectual or professional life is why we do what we do. So, hearing from, or bumping into, former students and hearing about their growth – and basking in their reflected glory – is always a highlight for me.

What’s the most unusual or interesting job you’ve ever had?

I’m not sure it was that unusual, but washing dishes and then making pizzas at Stromboli King Pizzeria in Madison, New Jersey taught me more about hard work than anything else I have done since then.

If you could travel anywhere in the world, where would you go?

I hate to be sneaky but it’s an around-the-world trip with stops in Patagonia, Namibia, and the Great Barrier Reef. I’ve overdosed on cities and need to do a little more nature.

The hardest part about developing my HBX course was ______________.

…keeping a straight face during hours/days of videotaping with a crew that was hilarious (and wonderful).

People would be surprised if they knew__________.

…that I have a weakness for British crime dramas – Broadchurch, Luther, River, The Fall, Happy Valley, Peaky Blinders – I’ll watch anything with coppers and accents.

Best book you’ve ever read?

Impossible to answer - here are three recent favorites from different genres that were favorites:

  • Larissa MacFarquhar’s Strangers Drowning is so well-written and such an interesting idea (extreme generosity).
  • Arvind Adiga’s The White Tiger is the best fiction relating to India I’ve ever read.
  • Asne Seierstad’s One of Us (about the Oslo/Utoya murders) is both terrifying and edifying.

The writing in all three of them is amazing.

Professor Mihir Desai works in his office alongside a photo of his parents

Best advice someone has ever given you?

My father was filled with great advice – the two best individual pieces were probably:

1. Learn to trust your instinct – I like this because it’s not about trusting your instinct but learning how (and when) to do that – a far harder thing


2. Not as effective when translated from Gujurati, but, “When Laxmi (the goddess of wealth) comes to bless you by putting a chandlo on your forehead, don’t ask if you can go wash your face.” Translation: Don’t hesitate when visited by good fortune.

Interested in gaining a toolkit for making smart financial decisions and the confidence to clearly communicate those decisions to key internal and external stakeholders?

Learn more about Leading with Finance

Topics: HBX Finance

HBX Leading with Finance Student Spotlight: Eric Black

Posted by Eric Black on December 20, 2016 at 8:53 AM


Eric is a Director at Scholastic Entertainment who participated in the beta cohort of Leading with Finance. Along with his day job, he's also the co-owner of Lyla Tov Monsters, a stuffed animal company that he runs with his family.

Why did you decide to sign up for Leading with Finance?


I thought it would be useful for both my full-time job and my family business to understand some basic concepts of finance better. At Scholastic, I often work with other groups who are determining where and what money is being spent. For Lyla Tov Monsters, the class can help me plan for the future growth of the company.

What was your favorite part of the program?

My favorite part was definitely Unidentified Industries! That module required me to use information learned as well as common sense to puzzle out what industries were represented by their financial data. It was fun, informative, and made me think about finances in a way I hadn't previously considered.

How are you applying the skills you've learned in Leading with Finance?

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In my job at a publicly traded corporation, I have been able to change my viewpoint of daily goals and accomplishments. Instead of just completing tasks to achieve an end goal, I now look at that end goal and consider how it affects the company as a whole and if there are financial goals and benefits that will increase the value of the company. In my family business, I am able to see what aspects of the business should be prioritized in order to attain value from short-term and long-term plans and expenditures of capital.

Any advice for people who will be taking Leading with Finance?

The most important thing I would say is to schedule your time to be able to get through each module without rushing. There is a large amount of information in each module and, though you can get through it quickly if you need to, you’ll get more benefit from it if you can take the time to really consider and reflect upon the knowledge being imparted.

Interested in gaining a toolkit for making smart financial decisions and the confidence to clearly communicate those decisions to key internal and external stakeholders?

Learn more about Leading with Finance

Topics: HBX Student Spotlight, HBX Finance

Is Holiday Cheer Driving the Market? Not Necessarily

Posted by Brian Misamore on December 8, 2016 at 9:21 AM


Because financial valuation is always forward-looking, today's market prices should incorporate all information about a company's performance - including expectations of future performance. As a result, anyone looking to make money on an individual stock (or write a compelling blog post) needs to look for surprises - times when reality over- or underperformed expectations.

So far, this holiday season seems to be off to a roaring start. Online sales on Cyber Monday hit a record $3.45 billion this year, and online sales on Black Friday topped $3 billion for the first time. UPS CEO David Abney reported to Bloomberg on November 28 that he expected 14% higher shipping volume this year than last year.

So, when researching this holiday blog post, I found several articles speaking glowingly about the stocks of UPS and FedEx, driven by this huge demand. So far, in 2016, UPS is up 20% and FedEx is up 30%, they said, boldly.

It makes sense, and it makes a compelling story. But is is true? The market is supposed to incorporate all information - was the market really surprised that this holiday season was good?

Actually, it turns out, the market has been relatively unimpressed by online sales this season. For example, Amazon's stock fell 3.79% between Black Friday and the end of the month of November, while the overall market (as represented by the S&P 500 index) only fell 0.27%. That suggests online sales under-performed expectations.

How about UPS and FedEx? Well, UPS went up 0.21% between Black Friday and November 30, and FedEx is up 0.87% in the same timeframe. Most of this growth begins Tuesday, November 29 - so clearly, Cyber Monday sales made a difference, but these numbers aren't exactly the 20% and 30% those articles were referencing.

Turns out, UPS is up this year mostly because they raised their dividend in May, turned in reliably growing performance all year, and then announced the acquisition of Marken on November 7, a life sciences supply chain company that will open up new business opportunities for them. FedEx's story is much the same - it beat market expectations with its quarterly earnings in March and September, seeing large price jumps at those times. Compared to the effects these events had on stock prices, both companies' end-of-November performance barely registers.

No one wants to write a story about how stock performance largely comes down to solid operations and good business models - it's so much flashier and exciting to talk about holiday sales and shopping events. But the market has thousands and thousands of analysts and investors trying to guess what those sales will be - its unlikely their consensus will be too far away from the truth.

Because the market is always trying to value the infinite future, long-term operational performance will always cause larger price movements than one-time events, and even surprises can leave investors unimpressed if they don't also change opinions about the company's future as a whole.

Interested in gaining a toolkit for making smart financial decisions and the confidence to clearly communicate those decisions to key internal and external stakeholders?

Learn more about Leading with Finance


About the Author

Brian is a member of the HBX Course Delivery Team and is currently working on the new Leading with Finance course for the HBX platform. He is a veteran of the United States submarine force and has a background in the insurance industry. He holds an MBA from McGill University in Montreal.

Topics: HBX Insights, HBX Finance

Trying to Understand the Post-Election Rally? Look Back in Time

Posted by Brian Misamore on November 29, 2016 at 10:15 AM


In the two-week period following the 2016 election, the stock market rallied by 1.35%. Is this normal following a presidential election? We dug into the data to find out.

To do this, we tracked the closing value of the S&P 500 stock index on election day, then the closing value two weeks later, for a period from 1952 to 2016 (for 1952 to 1980, we used the last day the market was open before election day). Here are our results:


During the period, the average two-week performance of the market after the election of a Republican was 0.29%, and the average two-week performance of the market after the election of a Democrat was -0.81%.

What does this tell us? Well, for most elections, other than entertainment value, surprisingly little. The value of the stock market at any given time is a forward-looking measure, meaning that investors attempt to take into account all available information when making pricing decisions. That means that the likely outcome of an election has already been “priced in” to the market price. This is especially true in elections that aren’t especially close – a good example is 2008, for which the change in the S&P 500 is more likely related to prevailing market conditions (the worsening financial crisis) than any repricing of stocks based on a “surprise” election outcome.

The election of 2016, however, was a surprise outcome, and so we should expect that most of the price shift might be related to the reaction to the result. In this case, the market feels that Donald Trump’s policies will likely favor American businesses, leading to an increase in the value of those businesses by approximately 1.35%. This change in expectation is not uniform, however. Banks have done exceptionally well (Bank of America is up 7%; Goldman Sachs is up 6%; Citigroup is up 5%), which is likely a result of Republican promises to repeal the Dodd-Frank financial regulation; whereas gun-makers have fared much more poorly (Smith and Wesson is down 7%; Sturm, Ruger & Co is down 9%), as the market had expected consumers to “stock up” in the event of a Clinton election and is now pricing in lower future cash flows for these companies.

As in all things, stock prices are a constant game, with all participants trying to forecast future cash flows and determine what those cash flows are worth today. Incorporating new information – including events such as elections – is critical.

Interested in gaining a toolkit for making smart financial decisions and the confidence to clearly communicate those decisions to key internal and external stakeholders?

Learn more about Leading with Finance


About the Author

Brian is a member of the HBX Course Delivery Team and is currently working on the new Leading with Finance course for the HBX platform. He is a veteran of the United States submarine force and has a background in the insurance industry. He holds an MBA from McGill University in Montreal.

Topics: HBX Insights, HBX Finance