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, […]
Why are highly specialized jobs concentrated at big organizations?
If you want to work in a highly specialized field, you will almost certainly be working for a big organization. The caveat here is that you might be employed by a small firm, but that small firm will almost certainly be captive to the big organization(s) that pay for its services. Why are highly specialized […]
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, […]
Transaction Costs in the American Economy from 1870 to 1970
What Are Transaction Costs? Transaction costs are often overlooked in economics and textbook finance. In real life economics, however, they play a very significant role. In corporate finance, you can see many of a company’s transaction costs located in the selling and administrative categories within the Selling, General and Administrative (SG&A) section of their Income […]
