Day 6 & 7: One Last Hoorah on Finance & Accounting...and Easter

The great city of Boston, a wonderful mix of the new and the old.

Easter in Boston

I finally got the chance to explore Boston. Harvard Business School (HBS) was kind enough to organize a tour for all Advanced Management Program (AMP) participants. The tour took us around the Cambridge area where Harvard and MIT are located. (A part of Harvard lies across the river, on the Boston side). Both campuses are just astounding in their architectural beauty, and contrary to what some people might believe, collaborate with each other on many diverse yet important issues and undertakings.

Since its founding in 1636, Harvard University has relied on the generosity of its benefactors. In fact the school was named after one of its benefactors, John Harvard, a young English clergyman who bequeathed the College his library of four hundred books and half of his estate. (Unfortunately, the library burned in a fire).Today it is considered the is the oldest institution of higher learning in the US. Harvard's history, influence, and wealth have made it one of the most prestigious universities in the world. As of 2011 its endowment fund is worth USD32Billion.

Boston itself is an eclectic mix of the old and the new. It has a very strict building code which requires that all new construction adhere to the red-brick color of its older houses. The result a unique and well-designed blend of old and modern structures.

Just one last note on Boston, I have personally not spent that much time in the US on my own - it's usually with family and friends. As a result, I have always seen the country as a homogeneous continent that is not as exciting and culturally diverse as Europe and Asia. This trip however belies all that. Underneath the appearance of a common and "bland" nation, are nuanced cultural differences that any visitor to the country ought to see. The architecture, fashion, values and (yes) English use are vastly different from West to East and North to South. I must say, I have not given this country the attention and appreciation it deserves.

Finance & Accounting's Last Hoorah!

Monday marks the end of the module on Introduction to Finance and Accounting. While the areas we covered are rather basic, the insights I gained are truly valuable. The formulas for the most part, except for this metric called ROCE (Return On Capital Employed), are nothing new. The insights and manner by which our Professors have taught it and demonstrated it in action, via the case study method, gives a more vibrant appeal and provides an entirely new texture for me. Let me attempt to summarize key points I committed to my Daily Diary (it's a note-taking system that HBS asked us to use in order to gather and document insights we got from the course).

Finance is the management of its 3Pillars, liquidity, financial structure and profitability, never push one at the expense of the other. The 3 Pillars are can be used in diagnosing the financial health of any business (another approach is via the DuPont analysis that involves margins, asset turn-over and leverage), drill down each component of the pillar using well-established business ratios
Each business has a self-sustainable growth rate that when plotted across time becomes the self-sustainable growth line. Growth below the line means management is too conservative and not seizing opportunities. Growth above the line means the business will explode soon as it does not have the resources to sustain or maintain growth. The challenge is to be cognizant of this line and develop strategies to mitigate the impact of business performance.
CFO (Cash Flow from Operations) should be the obsession of the CFO (and CEO)
The time value of money needs to be at the center of any discussions involving the evaluation of business opportunities. Setting financial and investment benchmarks is an iterative process involving senior members of the organization and considers - (1) risk, (2) cost of money, and (3) risk premium

Incidentally, this being the first week of our classes, the different courses of the Introduction to Finance and Accounting module were taught by different professors whose field of specialty is not Finance & Accounting. It again reiterates the point I made earlier about the quality and depth of talent in HBS. The professors are ambidextrous it blows my mind.

Again, I have to go to read some more cases. In the meantime, let me share some photos I took when I went around during the Easter weekend. By the way, Happy Easter!