IE 5325 Advanced Economic Analysis

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IE 5325Advanced Economic Analysis

• Week 1
• Introduction to Financial/Economic Decision Making

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Class Introduction

• Who am I
• Who are you
• Syllabus

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Economic Analysis

• Organizational goals
• Companies
• Non-profits
• Public sector
• Types of analysis
• Fixed input
• Fixed output
• Variable input/output

4
The New Economy

• The dot.com boom
• irrational exuberance (Alan Greenspan)
• Internet generated growth
• The dot.com bust
• NASDAQ declines over 50 in 3 years
• Information technology
• Tight supply chain coordination
• Remote delivery of services

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The Dot-com Bubble
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New Economy Myths

• Successive innovation guarantees success (Intel)
• High volume cures all ills (Amazon.com)
• Profit is old-fashioned, growth is the key
  (Juniper networks 250/share to 5 per share)

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The New-New Economy?
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The Latest Bubble

• What caused it to grow?
• What caused it to burst?
• What are the solutions?
• Recovery
• Prevention

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What is Shareholder Value?
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Back to Basics

• Business Decision Making
• Accounting
• Costs, sales
• Profit/loss
• Economic
• Cash flow analysis
• Trade-offs (cost/benefit)

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Economic Analysis

• Day-to-day operational decisions
• Strategy and investment decisions
• Business performance assessment
• Creating shareholder value

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Relevant Decision Information

• Freely share relevant financial information
• Financial staff supports decision-making
• Not accounting (past performance)
• Not control (budgets)
• Role Financial consultants

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Business as a System
Investors


Add Value (Assets, People, Knowledge)
Suppliers
Customers


Environment
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Business as a System

• Investment
• Selecting and acquiring resources
• Financing
• Choosing wise funding options
• Operations
• Using resources to create value
• Competitive, cost-effective

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Shareholder Value

• Long term or short term?
• Sustainability
• Competitive advantage
• Financial status
• Past performance
• Current state
• Future outlook

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Chapter 1 Summary

• Economic analysis is still relevant
• Differences between accounting and economic
  analysis
• Systems approach to business management
• Successful companies create shareholder value