Operating Expenses Disguised as Inventory
Companies need to keep some amount of inventory. When I go to a home repair supplier, I expect them to have the copper pipe I need in stock. When I go to my local bakery, I expect them to have the macarons I crave in stock. When I go to my local grocer, I expect […]
IRR, Payback, NPV and Parents for Financial Decisions
Are IRR and payback really always so bad for financial decision-making? Why do so many people use them if NPV is so much better? IRR and payback are not bad for financial decision-making. They provide you with different information about a potential investment or project than does NPV. To the academics of finance and accounting, […]
Big companies are incentivized to increase product specialization and complexity. Why?
Our culture values specialization. Having specialized skills often leads to outsized material benefits. It also often results in praise and social status. Consider the social recognition that would be given to a medical doctor who is a primary care family medicine doctor compared to that given to an orthopedic surgeon. They are both highly educated, […]
What do social networks have to do with company size?
Company size is a strategic decision. This decision, like all corporate strategy decision, is made by examining a company or nonprofit organization’s external environment. Coase’s theory of the firm tells us that big companies are big because they have decided to take in-house tasks that could otherwise have been performed out in the marketplace. Company […]
