This is an ongoing debate. One that requires serious study and more empirical studies. One that is very important given the money and time pour society spends on sports.  As CPA, CFA and MBA tutors our focus is on helping students with finance, accounting, statistics, etc but we also want to help them truly evolve as individuals. So we do encourage sports as we believe it builds various aspects of personality in individuals.

Here is an excellent article on this topic. It does not provide any statistics or facts but is an excellent and entertaining read drawing on the authors own experience and some classic history. Recommended read for all tutors and not just CPA, CFA and MBA tutors.

As MBA tutors, we are part of the entire education system. Although our current focus is limited to tutoring MBA, CPA, CFA students and other professionals, education overall is close to our hearts and one that we track.  Gordon Brown has been an ambassador of education for all. He spoke recently about an unfulfilled education promise of the developed world.

According to the report “Education for all: Beating poverty, unlocking prosperity,” improved access to schools and increased learning achievement could increase per-capita income growth in the poorest countries by 2%.  The report estimates that every $1 invested in education would generate $10-$15 in returns through higher growth.

We are glad that Gordon Brown is becoming an active advocate for education. We believe that there needs to be a drastic change in one or more spheres of life to be able to fulfill this promise of global education. It may be a technological breakthrough with prices of computers dropping and internet accessibility increasing, or may be a new learning or cultural system.

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.

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!?

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“.

As an attempt to make learning easier and enjoyable, Graduate Tutor had decided to include Open Courseware (OCW) programs into its wide range of topics for homework help and tutoring!

In the recent past Graduate Tutor had included a couple of topics from Sloan School of Business into its array of topics for tutoring and homework help. We are happy to formally announce the inclusion of Sloan School of Business’ ‘Data, Models and Decisions-15.060 (Fall 2007)’, into the list of OCW programs we tutor.  The operation research tutor group and the statistics tutor group will provide the tutoring support for this course.

MIT’s Open courseware is a major contribution to people who wish to learn and we wish to make it enjoyable!  Graduate Tutor’s expert tutors consist of MBA, CPAs or CFAs with remarkable tutoring skills in accounting and finance as seen in business schools. Currently our tutors cater to students from a number of top business schools and we are confident with their capability to tutor MIT’s open courseware (OCW)

‘Data, Models, and Decisions-15.060 (Fall 2007)’ is just one of the many topics that we plan to provide tutoring in. We hope to widen our spectrum and provide tutoring support to more programs included in MIT’s open courseware.

Enjoy learning and look forward to it!

If you havent read this tale below, you must. Of course, as MBA tutors, most of us at Graduate Tutor are MBAs, CPA or CFAs and have the attitude of the MBA in the story! I spent some time thinking about this story. What do you think about it!?

A management consultant, on holiday in a African fishing village, watched a little fishing boat dock at the quayside. Noting the quality of the fish, the consultant asked the fisherman how long it had taken to catch them.

“Not very long.” answered the fisherman.

“Then, why didn’t you stay out longer and catch more?” asked the consultant.

The fisherman explained that his small catch was sufficient to meet his needs and those of his family.

The consultant asked, “But what do you do with the rest of your time?”

“I sleep late, fish a little, play with my children, have an afternoon’s rest under a coconut tree. In the evenings, I go into the community hall to see my friends, have a few beers, play the drums, and sing a few songs….. I have a full and happy life.” replied the fisherman.

The consultant ventured, “I have an MBA from Harvard and I can help you…… You should start by fishing longer every day. You can then sell the extra fish you catch. With the extra revenue, you can buy a bigger boat. With the extra money the larger boat will bring, you can buy a second one and a third one and so on until you have a large fleet. Instead of selling your fish to a middleman, you can negotiate directly with the processing plants and maybe even open your own plant. You can then leave this little village and move to a city here or maybe even in the United Kingdom, from where you can direct your huge enterprise.”

“How long would that take?” asked the fisherman.

“Oh, ten, maybe twenty years.” replied the consultant.

“And after that?” asked the fisherman.

“After that? That’s when it gets really interesting,” answered the consultant, laughing, “When your business gets really big, you can start selling shares in your company and make millions!”

“Millions? Really? And after that?” pressed the fisherman.

“After that you’ll be able to retire, move out to a small village by the sea, sleep in late every day, spend time with your family, go fishing, take afternoon naps under a coconut tree, and spend relaxing evenings having drinks with friends…”

~author unknown

Here is what I thought about this!

• Its wonderful to know what we want. This is however not very easy as we have to remove external influences that create needless desires within us.
• I truly wonder if life will be so simple and if it will stay this way when everything around you is progressing down another direction.

What ever conclusions you reach, we must all agree that it is important to try and figure out what we really want with our MBAs and our lives in general and aim towards it. Otherwise we will spend our lives climbing up the wrong ladder and on reaching the top feel that we have waster our lives.

The MBA program is a challenge for most of us! Juggling work, studies, family duties, extra curricular activities and other demands on your time is never easy. If you are from a non- business background you can add to that list subjects like accounting, finance, statistics and operations research which require great tutors and sufficient time to master. We hear this often and want to highlight this great quote from Roosevelt.

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

- Teddy Roosevelt, April 23rd 1910

Hang on and persevere. This MBA program will be over soon and you will enjoy the benefits of being an MBA graduate! In the meantime, if our MBA tutors including accounting tutors, finance tutors, statistics tutors, economic tutors, operations management tutors, etc can assist you in any way, please do not hesitate to get in touch with us. Private tutoring does make learning a lot easier and faster.

As MBA tutors, we get to work with MBA students around the country. The business writing skills of a few MBA students are a concern for us. With texting becoming widely prevalent, classic writing skills are being significantly compromised. Spellings, grammar, structure, et al are severely compromised.

This NYT article highlights this issue in the US.  I recently read about a group of UK educators who considered removing the requirement for correct spelling in exams as the number of British students failing exams had increased dramatically!

I believe that we are only seeing the tip of the iceberg as most of our students are in their thirties and above. We will only see the impact when today’s teenagers reach graduate school.  A decade from now, I believe that business writing will become a foundation course in the MBA program.

The NYT article above takes a lenient view on spellings. I personally would like to maintain the good old classic writing skills and will encourage students to use good business writing. While we do not have any specialist business writing tutors, our finance tutors, accounting tutors and economics tutors can tutor you on business writing and help you develop business writing skills.