With the second to last installment of my Condensed MBA series, we move on to the second year. If it seems like the posts are heavy on the first year, that’s because the full time MBA tends to skew that way. At BC, we moved from quarters to semesters and from daytime to evening classes. For many, that allowed them to work either full or part time and for others it opened up time for the job search or to participate in extracurriculars such as my pet project the BC Grad Tech Club. Still however, there was a lot of learning that went on and, as always, I have documented my take-aways here. (If you missed my summaries of the first year courses see parts one, two, three, and four or a shortened version of the full first year on Linkedin.
Second Year: First Semester
For most marketing MBAs the end of first year means you never have to take a finance class again. For me, however, I finished first year feeling that I had not yet developed the strength in finance that an MBA ought to exhibit so I enrolled in Corporate Finance. It was certainly the right decision and I left the class with a couple of key take-aways:
- What is a company’s valuation actually supposed to represent? Whether it is the market cap of a public company (aggregate value of outstanding shares) or the estimated valuations that underlie investments in private companies, it is easy to talk about what a company is “worth” without actually being able to clearly articulate what that means. For me, drilling home the concept that the companies value represents the monetary value of its tangible and intangible assets AND the present value of the aggregate amount of money it will generate in the future was revolutionary. Understanding that last factor and what goes into calculating it (risk, discount rate, etc.) helped clarify a concept that had previously seemed rather convoluted.
- In any finance event, over-communicating your reasons is key- Whether it’s buying back shares, taking on debt, or issuing shares every move you make will send a message and if you aren’t clear about the why, investors will infer what they want. In fact they will probably do this regardless, but the more guidance you can give, the better chance you have of preventing misinterpretations. For instance, investors will almost always interpret a new share issuance as an indication that the management thinks the stock is overvalued. If you are going to issue new shares for any other reason you MUST be very clear about the why and even then you will see some drop in share price as not every investor will trust that you do not believe the stock is overvalued.