Or at least General Electric is the most admired company in America, according to Fortune magazine’s annual survey. The other top ten ﬁnalists are Cisco Systems, WalMart Stores, Southwest Airlines, Microsoft, Home Depot, Berkshire Hathaway, Charles Schwab, Intel, and Dell Computer. What do these companies have that separates them from the rest of the pack? According to more than 4,000 executives, directors, and security analysts, these companies have the highest average scores across eight attributes: (1) innovativeness, (2) quality of management, (3) employee talent, (4) quality of products and services, (5) long-term investment value, (6) ﬁnancial soundness, (7) social responsibility, and (8) use of corporate assets. These companies also have an incredible focus on using technology to reduce costs, to reduce inventory, and to speed up product delivery. For example, workers at Dell previously touched a computer 130 times during the assembly process but now touch it only 60 times. Using point-of-sale data, Wal-Mart is able to identify and meet surSee http://www.fortune. com for updates on the U.S. prising customer needs, such as bagels in Mexico, smoke detectors in Brazil, and house ranking. Fortune also ranks paint during the winter in Puerto Rico. Many of these companies are changing the way the Global Most Admired. business works by using the Net, and that change is occurring at a break-neck pace. For example, in 1999 GE’s plastics distribution business did less than $2,000 per day of business online. A year later the division did more than $2,000,000 per day in e-commerce. Many companies have a difﬁcult time attracting employees. Not so for the most admired companies, which average 26 applicants for each job opening. This is because, in addition to their acumen with technology and customers, they are also on the leading edge when it comes to training employees and providing a workplace in which people can thrive. In a nutshell, these companies reduce costs by having innovative production processes, they create value for customers by providing high-quality products and services, and they create value for employees through training and fostering an environment that allows employees to utilize all of their skills and talents. Do investors beneﬁt from this focus on processes, customers, and employees? During the most recent ﬁve-year period, these ten companies posted an average annual stock return of 41.4 percent, more than double the S&P 500’s average annual return of 18.3 percent. These exceptional returns are due to the ability of these companies to generate cash ﬂow. But, as you will see throughout this book, a company can generate cash ﬂow only if it also creates value for its customers, employees, and suppliers.
An Overview of Corporate Finance and the Financial Environment CHAPTER 1 An Overview of Corporate Finance and the Financial Environment
This chapter should give you an idea of what corporate ﬁnance is all about, including an overview of the ﬁnancial markets in which corporations operate. But before getting into the details of ﬁnance, it’s important to look at the big picture. You’re probably back in school because you want an interesting, challenging, and rewarding career. To see where ﬁnance ﬁts in, let’s start with a ﬁve-minute MBA.
The Five-Minute MBA
Okay, we realize you can’t get an MBA in ﬁve minutes. But just as an artist quickly sketches the outline of a picture before ﬁlling in the details, we can sketch the key elements of an MBA education. In a nutshell, the objective of an MBA is to provide managers with the knowledge and skills they need to run successful companies, so we start our sketch with some common characteristics of successful companies. In particular, all successful companies are able to accomplish two goals. 1. All...