Does where you go to b-school matter?

As MBA tutors who prep students for b schools in statistics and math boot camps we get asked a lot of pre MBA questions. One of those ‘Does where you go to b-school matter?’ is almost an age old question. Questions related to this include: How important is the b-school brand name? Are rankings important? Which ranking should I use? Should I not go to b-school if I dont get the one I want?

There is a great amount of research that has gone into this. In our opinion (as MBA tutors) there is no clear answer (yet). Here is an older article that address this question from the NY Times.

While I haven’t read the original report (which is available here) and dont agree with everything the article states, the author’s conclusion is good in my humble opinion! To quote:

“My advice to students: Don’t believe that the only school worth attending is one that would not admit you. That you go to college is more important than where you go. Find a school whose academic strengths match your interests and which devotes resources to instruction in those fields. Recognize that your own motivation, ambition and talents will determine your success more than the college name on your diploma.”

Note carefully that the author says clearly “Find a school whose academic strengths match your interests and which devotes resources to instruction in those fields.” Its not that the brand name or reputation does not matter at all or is irrelevant. Its not the only thing!  Also often if a school has a specific academic strength and “devotes resources to instruction in those fields” it will build a reputation in that area.

Also, please don’t join any school just for the sake of it. As MBA tutors we have seen students come out of MBA programs no better than when they join it! You must be intentional and join an MBA program with the right attitude to learning and growing as an individual. The people you learn from must be able to impact your way of thinking. That is education and how and where you get it does not really matter.

 

MBA students: $20 Amazon.com gift card for $10!

Most of us as MBA tutors or MBA students, buy plenty of books from amazon.com. Here is a little gift from Amazon.com and Living Social. Buy a $20 gift card for $10! Thats a 50% discount for you.

Amazon picked up small stake in Living social for $175 million last year to get a toehold in the local deals space.  The valuation and size of the stake were not disclosed. I wondered why Amazon.com would not build this themself given the traffic they already generate on their website!

This is a great promo as it serves as a great marketing tool for both companies but more Living Social (IMHO). Im sure Amzaon.com has done their analysis to figure out the $20 value. Probably most people spent on average more than $20 on a purchase there (we do – business/management text books are expensive!).

Enjoy the deal. This doesn’t compare to student aid but Im picking up a gift card. 🙂

Investing in distressed assets

Investing in distressed assets requires great skill and talent. I would even consider investing in distressed assets to be a profession by itself! Our finance tutor has an excellent article today on the risks and rewards of investing in distressed articles.

As our MBA finance students consider the various opportunities in the world of finance, I would encourage you to explore the opportunities in investing in distressed assets. There are many ways to tap into the distressed assets space. Some of them  include

  • Private equity firms that specialize in distressed assets;
  • Distressed assets departments in investment banks;
  • Directly investing in distressed assets;
  • Banking departments that lend to distressed asset investors, etc.

Investing in distressed assets can be very profitable. Often the reason for distress is very clear, personal/specific and temporary. When the distressed situation blows away, the distressed assets gains tremendous value!  This article on investing in distressed assets highlights the profitability of the method when successful.

However, investing in distressed assets also has a high degree of risk. This risk is usually due to misreading the reason for distress or for misplaced or incorrect future expectations. The article also highlights an example of William Ackman’s (Perishing Square Capital Management) experience in investing in Stuyvesant Town and Peter Cooper Village.

If you are interested in learning more about investing in distressed assets, please do call or email us. Our finance tutors will be happy to assist you in learning how to evaluate and model opportunities.

Is Renting Textbooks Really Cheaper Than Buying?

MBA text books are very expensive. At least most of them! Today Mint.com blog post has an interesting article on the question “Is Renting Textbooks Really Cheaper Than Buying?”

Its a good article with talks about the various options and the pros and cons.  The answer really depends. Read the full article here.

Valuation Multiples with Google’s Groupon offer! (part 2)

Google’s recent bid to buy Groupon’s business offers interesting lessons in valuation. Rather than rewrite the story, I want to point you to a finance tutor‘s article on business valuation.

Finance Tutor addresses the article from the perspective of testing the valuation concepts you learn in business school. With their permission, I repost finance Tutor’s article here. This is the second part and focuses on explaining multiples based valuation methods.

Part 2

Valuation Multiples: Groupon’s $6 Billion value using multiples

Our last post on business valuation spoke about how you can approach business valuationusing the discounted cash flow method or the valuation multiples method.  Here we show you how you can estimate the value of Groupon’s business using the multiples valuation method.

Your first task when trying to arrive at a multiples based valuation is to find comparable companies. Comparable companies are similar companies or companies that are in the same business, companies with similar characteristics, growth rates, profit margins, etc. Often it is not possible to get an exact match so picking a company with similar characteristics, growth rates and profit margins is sufficient.

For Groupon, Google itself may be a comparable company to arrive at valuation multiples. Google is significantly larger and but its slower growth rates compensate for the size difference. Apple has shown great growth but is much larger and is not a purely service business. Ebay can be a comparable firm to arrive at valuation multiples too. Lets start with Google.

Sales Multiples (valuation multiple)

According to the NYT, Groupon’s revenue may top $1 billion a year. This is a good place to start.  Google has revenues of 27.55 billion and a business valuation of 149.21 billion (enterprise value) today according to yahoo finance. This works out to a sales valuation multiple of 5.4x (149.21/27.55).

Using this 5.4x sales valuation multiple, Groupon’s business value will be $1 Billion*5.4 = $5.4 billion! This business valuation is in the ball park of the rumored deal price!

Earnings Multiples (valuation multiple)

Google has a PE multiple of 23.23. PE stands for Price/Earnings per share. This indicates that its business valuation is approximately 23.23 times its earnings as Google has very little debt.  If we assume that Groupon has the same profit margins as Google (28.8%), we can estimate its potential earnings at 288 million (28.8%*$1 Billion).

Using the above estimates, we can arrive at Groupon’s business valuation of $6.69 billion (288*23.23). This business valuation is again in the ball park of the rumored deal price! At first sight, it looks like Google is overpaying for Groupon. But it may not be overpaying. It may be a steal!

So are the business valuation concepts you learn in class used in business valuations in the real world? Looks like a resounding YES! So make sure you get your MBA finance concepts clear. You may be called to use it in the near future!

Go ahead and try the same with EBAY or AAPL’s valuation multiples. Let us know what you would pay for Groupon business using valuation multiples.

Business Valuation with Google’s Groupon offer! (part 1)

Google’s recent bid to buy Groupon’s business offers interesting lessons in valuation. Rather than rewrite the story, I want to point you to a finance tutor‘s article on business valuation.

Finance Tutor addresses the article from the perspective of testing the valuation concepts you learn in business school. With their permission, I repost finance Tutor’s article here.

Part 1

You learn the about business valuation in business school. But are the business valuation concepts you learn in business school used in business valuations in the real world?  Lets check a current business valuation:

You must have heard about Google’s interest in buying Groupon’s business at a reported valuation of $5-6 Billion! How could Google arrive at this business valuation of Groupon’s business? Valuation principles direct us to use either the discounted cash flow method orvaluation multiples method to arrive at business valuations.

Business Valuations using the Discounted Cash-flow Method

To arrive at business valuation using the Discounted Cash-flow (DCF) process, we need to project out the cash flow of the business into the foreseeable future.  We discount this cash flow at the appropriate discount rate to arrive at the present value of cash flows for this valuation period. We then estimate a terminal value (present value of the cash flow beyond the foreseeable future assuming cash flow grows at a constant rate usually inflation rate or slightly higher).  The sum of the present value of cash flows for the foreseeable valuation period and the terminal value form the basis of the business valuation using the DCF method.

Can we estimate Groupon’s business value using the DCF method? We will need detailed projections of Groupon’s future cash flow which we do not have! We can try arrive at the business valuation with some estimates. But why do this when we have an easier approach?

Business Valuations using the Multiples

Business valuations using the valuation multiples is essentially looking at the business valuation similar companies have obtained recently and relating that to known business metrics like sales, earnings per share, customers,  etc. Groupon does not have any comparable companies with publicly available data. We therefore need to look at companies with similar business characteristics, growth rates, profit margins, etc to arrive at the appropriate valuation multiples.

Part 2 of this post shows you how valuation multiples can be used to arrive at the business valuation of Groupon.

For Profit Education: Getting out of debt or into debt!?

Jeremy Dehn a professor shares his thoughts on the recent hearings on the money making machine the for profit universities have been accused of being. Not that making money is bad per se. But promising to provide education and not doing so or using underhand tactics for profits is something that must be stopped. Will college debt becoming as large as credit card debt, the root causes, be it for profit universities or something else, must be investigated and eliminated urgently.  As MBA tutors, please let us know how we can help!

Read his thought in his NYT piece.

Best Executive MBA (EMBA) Programs

The WSJ EMBA rankings are out! Check out this list for the latest ‘gyan” on the best executive mba (EMBA) programs!?

Are the EMBA rankings really meaning full? Check out the methodology too? What in your opinion should really matter? Is it recruiters opinion? Or peer reviews by EMBA Deans? Or should it be the percentage increase in salaries obtained in 5 years!?

The article also states that the tuition tab is increasingly picked up by students! An EMBA can get you down by $100k to $150k a year. Would you be willing to spend this much on an EMBA when a part time mba or an evening MBA program will cost much less!?

Executive MBA vs. Full time MBAs : Tuition

The economist has an interesting article on the cost difference between Executive MBA programs and the Full time MBAs programs titled “A costly lesson“.

The article provides example of the price difference at Boise University. The price difference is huge and possibly reflects other executive MBA programs! The articles indicates that some of this difference can be justified by the higher expectations and demands of the senior executives. We can attest for that. We tutor MBA students both full time students and executive students at www.graduatetutor.com and can tell you that the executive students really expect more. They really want to understand their subject at a deeper level be it accounting or finance or statistics. Their focus is really how it applies to their work environment.

Fortunately, GraduateTutor.com is geared to handle the higher expectations of executive MBAs. Our private tutoring programs are geared towards assisting students learn and master their subjects be it  accounting or finance or statistics or any other courses we offer tutoring in.

Beyond the higher expectations of executive MBAs, in our opinion, the additional price is being paid for the brand value and networking potential ” it’s not what you know but who you know“.