Tag Archives: Assets

Lessons from a Masters In Business Administration: Accounting Is About Perception

Accounting Is About Perception: example, MLB calculation of profits and limiting tax liabilities. In this case study, a baseball team, the Montreal Expos has a dispute between players, and the owner about how profitable the club is in actual terms.

The argument for the players is that the owners are using accounting tricks to reduce their profit and then using those numbers to justify not paying the players as much as they are worth. The trick is that players are depreciated under the tax laws in Canada, and the US. When you buy a team, you can capitalize the value of your players ie you treat your players as assets on your balance sheet, rather than an expense, which is on the income statement. Therefore, if you buy a team for 100 million, and capitalize the value of players at 50 million, you can then charge a depreciation expense over six years. With salaries, this expense means you get a double expense. The problem is that the depreciation expense doesn’t make any sense since the team might have young talent that only improves over time, players don’t depreciate. So the players argue that the real expense is salary and that the owners are abusing the depreciation allowance to minimize their profits to then justify lower salaries.

ACCOUNTING is useless to some because it appears to be the art of manipulating numbers to fit whatever goal you had in mind. It is confusing and deceptive, and describes events long after they had happened. There were far more effective ways of examining a company’s health. Others believe that account is useful because it is a standard measure that allows us to compare companies with different performances. You will need to gain a critical eye in accounting to be successful in an MBA.

There are two major mantras of accounting. The foundation is the following:

Assets = Liabilities + Equity


Accounting = Economic Truth + Measurement error + Bias

Discovering economic truth is very difficult to do. The rules are the messy by-product of corporate and technological change, lawyers, lobbyists, politicians, and companies all scrapping for some advantage. If accounting ceases to reflect what is going on but instead becomes a game, it becomes worthless and destructive on a macro-level as demonstrated by the 2008-2011 Western Country Recessions.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]

Lessons from a Masters In Business Administration: Liabilities vs. Assets

Liabilities vs. Assets: the money you give away is a liability, whereas the money they have given you is an asset. Banks have huge short-term liabilities – a.k.a. money in their customers’ accounts which can be withdrawn at anytime.  For a bank, a loan is an asset because it is means repayment while money held for customers are liabilities for a bank.

Decision Trees:  Making decisions in business is not always that easy. If you drill for oil in a certain spot in Alberta, Canada, you will have to spend $10 million in drilling costs. From this exploration, there are two possible outcomes. There is a 30% chance that you will find nothing and a 70% chance that you will make $20 million. Multiply the outcomes by a percentage, and you get $0.0000000 versus a positive $14million. So the investment is possibly worth $14million. Probabilities have to be accurate to make this a valid measure….

Learn Excel: Regression Analysis is used to determine why someone who lives close to the bank, chooses or doesn’t choose to use that service over another. Do older people use online banking? Regression is essentially a Large N study or large number of pieces of data study, where you will be asked to make sense of this data, and simplify those trends. These questions can be analysed using a rather useful little program. Excel is essential for an MBA program. Learn as much Excel as possible before you start your MBA.

Why You Should Consider An MBA: The people who go to business school are in two camps, those who know exactly why they are there, and those who know only somewhat. The first group have taken time off from the standard McKinsey or banking backgrounds and they want to make a specific career change. The second want a change in their life but are not sure which kind. An MBA will teach you the language of business which is invaluable.  You will not be the intellectual elite, the artistic, or creative elite. An MBA prepares you to be the “competent elite.” (Laurence Shames) Many people hate MBAs because they engage in too much cost-benefit analysis, and too little humanity.

The Top US Schools: Stanford is known as a place for Silicon Valley entrepreneurs. Kellogg is famous for marketing: building a brand is what Kellogg people do. Wharton is for financiers, Columbia is similarly plugged into New York, Sloan School is for engineers, and scientists.

In Order To Apply: You will be expected to explain 1) why you want to come to a business school? 2) why that particular business school? 3) what have you done in life that makes you think that a business education would be worth the time of that school, and yours? Describe a leadership situation, a difficult moral decision, the intentions of coming to that business school…

Course Structure: Harvard MBA is broken down into 10 courses, finance 1, accounting, marketing, operations, and organizational behaviour, then finance 2, negotiating, strategy, leadership, and corporate accountability, and a macroeconomics course called Business, Government, and International Economics, known to all as ‘Biggie.” Grades are curved: so if you get 94%, and everyone else gets 95% you are screwed. In an MBA, participation is 50% of the grades.  Like all professional programs, you have to know what you want, and what you are good at before you proceed.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]