Answering a discussion Question:
"Are we calculating time value of money just so we can maximize the use of Excel? What is the real purpose of doing these calculations? In some of my experiences, even at universities and other business, the results of time value of money/net present value/internal rate or return are printed on some format but never really discussed in detail. Why is this?"
My Response:
I appreciate your question, as it is very relevant to the discussion at hand. While understanding that the present value of money is important to business decisions, not all businesses (as you mention) treat the information the same. Just as the term value means different things to different people, so to does the combination of time with it. Because debt, investment, and capital instruments are available, organizations need to understand how they work (Bauman, 1965). I have worked within companies that present a budgeting dashboard, but with fleeting fancy and lacking transference of financial acumen to the employees. While Excel and other software provide pretty pictures and an assurance that whoever creates them knows what they are doing, the real benefit to them is the information contained, and the actions taken from them. Information that is actionable can impact managerial decisions in many industries (Scorte & Farcas, 2013).
A key point to the discussion is that information alone is not enough. They must provide invitations to act. While currently serving as a Sunday school teacher, one of the key points of training in such a role is that a teacher is not a source of distilling information, but given three initiatives in such a role: Teach Doctrine, Invite to Action, and Promise Blessings (Sunday School, 2011). While this is true for teachers, it is also true for any dissemination of information, financial or otherwise. Business tools such as dashboards, in and of themselves, are insufficient to provide results – they must be acted on effectively and be quality-driven (Wieder, et al, 2012). Simply having information should not be the end result of financial analysis. Dashboards can be used for simple activities like showing ledgers, accounts payable, and other horizontal processes (Banham, 2009) but from the pretty colors and diagrams must come customizable and effective decisions to lead the organization.
Whether or not organizations utilize the information that analysts provide can stem from a variety of sources, including resource availability (Julian & Ofori-dankwa, 2013), only using them for specific purposes such as marketing (Guiyang & Sundar, 2013), or simply lacking understanding. Other reasons can include the need to reflect regulatory transparency, only wanting to reflect good news, and assisting shareholders understand information (Wasley & Shuang Wu, 2006). Whatever the reason, many companies, teachers, and individuals could do better with not merely having information, but effectively using it as a financial tool.
References
Banham, R. (2009). Revving Up Dashboards. Treasury & Risk, 38-40.
Bauman, W. S. (1965). The Investment Value of Common Stock Earnings and Dividends. Financial Analysts Journal, 21(6), 98-104.
GUIYANG, X., & SUNDAR, B. (2013). Asymmetric Roles of Advertising and Marketing Capability in Financial Returns to News: Turning Bad into Good and Good into Great.Journal Of Marketing Research (JMR), 50(6), 706-724. doi:10.1509/jmr.12.0278
Julian, S. D., & Ofori-dankwa, J. C. (2013). Financial resource availability and corporate social responsibility expenditures in a sub-Saharan economy: The institutional difference hypothesis. Strategic Management Journal, 34(11), 1314-1330. doi:10.1002/smj.2070
Scorţe, C., & Farcaş, M. (2013). THE IMPACT OF ACCOUNTING INFORMATION ON MANAGERIAL DECISIONS - THEORETICAL APPROACHES. Annals Of The University Of Oradea, Economic Science Series, 22(2), 692-702.
Sunday School Auxiliary Training (2011). Retrieved from https://www.lds.org/callings/sunday-school/messages-from-leaders/sunday-school-auxiliary-training?lang=eng
WASLEY, C. E., & SHUANG WU, J. (2006). Why Do Managers Voluntarily Issue Cash Flow Forecasts?. Journal Of Accounting Research, 44(2), 389-429. doi:10.1111/j.1475-679X.2006.00206.x
Wieder, B., Ossimitz, M., & Chamoni, P. (2012). The Impact of Business Intelligence Tools on Performance: A User Satisfaction Paradox?. International Journal Of Economic Sciences & Applied Research,5(3), 7-32.
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