It is really important to understand whether certain metrics are going to work for you or not, and if a metric isn’t working for you, you’ve got to ask yourself why.
Let’s say you don't feel comfortable with NPV. If you feel as if a CFO is going to say, "Wait a second, why did you use that discount rate?" You may feel a little bit shaky about it. A discount rate is something you need to be comfortable with.
Years ago, I asked a Catholic priest, “Could you raise a child to be a Catholic if you aren’t a Catholic yourself?”
The priest’s answer was, "Son, you cannot give a gift that you do not own."
I think the same thing is true when it comes to financial analysis. You need to feel thoroughly comfortable with your worksheets. That’s one of the reasons we give people live Excel versions of our model financial analysis sheets, so they can play with them on their own instead of creating them from scratch.
You can build a tremendous amount of intuition about how these numbers work if you take the time to understand them. I think that solves a lot of problems. Enter the cash inflows and outflows in the right places, then change the discount rate. Change the inflation rate. Change the reinvestment rate. Change the finance rate. You'll see what makes the numbers go up and down. And hopefully, with time and experimentation, you’ll own that material.
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