This reading provides principles and practices managers can draw upon to leverage differences in social identities - such as gender and race - to create more effective work relationships, teams, and organizations. The Essential Reading's first section draws upon research to argue that diversity can contribute to organizational effectiveness, but only if managed well. The second section delves into the meaning of social identity and unpacks prejudice, bias, and discrimination in the workplace. The third section lays out how social identity dynamics commonly play out in organizations, and the fourth section presents core principles, with associated practices, to help manage social identity differences. Concepts covered include stereotype threat, implicit bias, tokenism, first- and second-generation discrimination, identity abrasions, and common perspectives on diversity in organizations. The Supplemental Reading addresses three topics relevant to managing gender diversity: work/life balance, sexual harassment, and masculinity in the workplace. The reading has five videos: "Stereotype Threat" presents a seminal study on this phenomenon, "The Invisible Winds of Discrimination" provides a useful metaphor for managers of diverse workforces, "Learn, Unlearn, Learn" shows how identity abrasions can lead to cross-identity learning, "The Impact of Implicit Bias on Leadership Assessment" provides an example of how male and female leaders are often viewed differently, and "Addressing Gender Bias" highlights successful interventions to overcome bias in organizations. The reading includes a link to the Implicit Association Test, enabling them to better understand the concept of implicit bias.

This is a standalone reading designed to introduce students to the shareholders' equity section of the balance sheet. The reading provides the formal definition of shareholders' equity and its four main components-contributed capital, distributions, retained earnings, and accumulated other comprehensive income.

Core Curriculum Readings in Finance cover the fundamental concepts, theories, and frameworks in finance. This reading presents an overview of corporate governance, focusing on for-profit businesses that are privately owned by dispersed investors-that is, not owned by a government or by a single owner. The Essential Reading covers the varied mechanisms that address two essential types of conflicts of interest that occur in corporations, both of which arise from the common feature of dispersed ownership: 1) conflicts between managers and owners, and 2) conflicts between controlling and non-controlling owners. The reading provides a foundation for further study in the general topic of corporate governance. The Supplemental Reading briefly reviews topics such as "stakeholder" vs. "shareholder" models of corporate governance, the role of creditors in governance, and the important but distinct non-finance goals served by corporate governance.

This reading provides a complete overview of assets, the variety of resources owned or controlled by a business entity. Assets are an element of the accounting equation Assets = Liabilities + Equity and are reported on a company's Balance Sheet.

This is a standalone reading designed to enhance students' understanding of liabilities and their measurement, presentation, and impact on a company's financial statements. The reading provides the formal definition of a liability and the conditions required to measure, classify, and record a liability on the balance sheet.

Global teams are ubiquitous and necessary in today's world and provide significant advantages to companies. However, the complexity of global collaboration can cause issues and result in team dysfunction and lack of trust. This reading focuses on how leaders of global teams can improve the workings of their groups by using the SPLIT model.

This reading covers the various market and regulatory institutions involved in the accounting rulemaking process in the United States and beyond.

The overarching goal of the revenue recognition chapter is to help readers understand better the substance and implementation challenges of the joint FASB/IASB revenue recognition standard.

This Reading introduces basic elements of the structure and process for mergers and acquisitions transactions, arising from markets, custom, and law. It introduces important characteristics of typical M&A transactions, such as deal structure, elements of M&A contracts, and reasons for and effects of a typical deal process. No prior knowledge or reading is necessary.

The objective of this reading is to enhance understanding of the concept of fair value as used in accounting. It is not intended to expand knowledge of specific accounting applications of fair value at the transaction level.

This reading provides a solid foundation and consistent knowledge base for understanding the key insights from options theory. It begins by developing terminology and a framework for understanding the contractual rights and obligations embedded in financial option contracts. The framework is used to map out the future cash flows (payoffs) associated with specific types of option contracts. Using the associated payoff functions, the value of an option contract is motivated as the present value of the option's expected future payoffs and is derived as the value of the portfolio of securities that would replicate those payoffs. The reading then examines how option contracts can be combined to provide specific desired payoffs (hedging). The reading shows how the Black-Scholes formula extends the framework. Discussion of the model includes intuition, insights about parameters, and numeric examples. Finally, several corporate finance applications are discussed, including accounting for the cost of employee stock option grants, understanding and valuing contractual terms of an acquisition offer, and determining an appropriate yield-to-maturity on new corporate debt issue.

The objective of this reading is to enhance understanding of the nature of the information that general purpose financial reports provide. This goal is achieved by exposing readers to the basic accounting concepts and assumptions that shape the form and character of this information.

This Reading introduces practical problems encountered when estimating and applying the cost of capital in a DCF valuation. It applies, but does not derive, key ideas from modern portfolio theory and is accessible to readers who have not yet studied portfolio theory. The reading begins by defining the cost of capital narrowly, as a discount rate (in a DCF valuation) that must equal the opportunity cost of funds, or equivalently, the sum of the time value of money and a risk premium. This intuitive explanation is followed by the CAPM equation, and practical discussions of systematic risk, beta, and the equity market risk premium. The Reading then introduces WACC as an alternative calculation for the cost of capital and shows, graphically and mathematically, the correspondence between CAPM and WACC in the absence of taxes. The Reading also explains that the "(1-t)" adjustment term in the formula for WACC with taxes compensates for missing interest tax shields in the standard calculation of Free Cash Flow. The next section is a step-by-step explanation of how to calculate WACC for a real company, including discussions of data and sources commonly used by practitioners to compute leverage ratios, the cost of debt, the tax rate, the risk-free rate, and so forth. Finally, the reading walks through an illustrative calculation of WACC for Coca-Cola, as of December 31, 2015, using data from Coca-Cola's SEC filings and the capital markets. The Supplemental Reading section examines some of the limitations of WACC as a discount rate as well as some common errors that practitioners make in computing and using WACC. It also covers two alternatives to WACC-based DCF, the APV and CCF methods.

Managerial, executive, and entrepreneurial success requires the ability to negotiate. The essential reading and recommended module plan will help readers become more effective negotiators by: 1) mastering a negotiation framework that will help them analyze, prepare for, and execute negotiations more systematically-and hence, more effectively-in a wide variety of contexts; 2) building a negotiation toolkit that consists of practical strategies for creating and capturing value in negotiation; and 3) learning how to create a negotiation environment that helps diagnose individual needs, and allows negotiators to identify techniques for mitigating weaknesses and leveraging their strengths. The supplemental reading addresses two additional topics: cross-cultural negotiations and gender issues in negotiation.

The Corporate Strategy Reading uses the lens of value creation and value capture in order to examine corporate strategy. It highlights why firms, especially those competing in multiple businesses, need a corporate strategy in order to guide their decisions about the scope of businesses they should operate in, as well as whether and how to structure the relationships between these businesses. In doing so, the Reading emphasizes how different modes of coordinating economic transactions affect the likelihood of positive and negative synergies. The Reading also considers how a firm should organize in order to implement its corporate strategy successfully. It concludes with two short supplemental readings that consider the interaction between corporate strategy and organizational scope.

This is the second in a set of two Readings on Modern Portfolio Theory. It presumes readers have already read "Risk and Return 1: Stock Returns and Diversification" (#5220). This Reading starts by examining the effect of diversification on portfolio volatility, graphically and mathematically, for different levels of correlation among portfolio assets. Next, it compares portfolios and defines the concepts of efficiency and the efficient frontier. It introduces a riskless asset and uses it to identify the tangency portfolio and to define the Sharpe Ratio as a way to compare excess returns to risk. The discussion demonstrates how borrowing and lending can create any portfolio along the line between the risk-free rate and a portfolio in mu-sigma space, and it presents the two-fund separation theorem. Finally, the Reading considers the problem of whether to add a small amount of a risky asset to an existing portfolio as a way to derive the Portfolio Improvement Rule, before concluding with general equilibrium and the Capital Asset Pricing Model (CAPM). Topics covered in the Supplemental Reading section include estimation of betas, the equity market risk premium, and real-world application of CAPM, and criticisms of CAPM, both theoretical and practical. The Reading contains six web-based interactive illustrations. The first shows the decline in the volatility of a portfolio's returns as the number of stocks in the portfolio increases from two to 30. The second is the same as the first but allows the reader to specify the correlation among the 30 stocks. The third shows the region in mu-sigma space that includes all possible portfolios for five risky assets, the "broken eggshell" shape. The fourth shows possible portfolios composed of two assets when one of the assets is risk-free. The fifth illustrates how the tangency portfolio and Sharpe ratio are determined. The sixth illustrates the Portfolio Improvement Rule.

This Reading helps readers understand that financial ratios-one financial statement item divided by another-are used to create useful metrics. In other words, the inputs or financial items are derived from the financial statements. The reading also shows how ROE is calculated using three ratios: profit margin, operation efficiency, and financial leverage.

This is the first in a set of two Readings on risk and return. It introduces the ideas of financial risk and return, at first intuitively, with a discussion of investor risk aversion and tradeoffs, and then formally, with a basic explanation of pertinent statistics. It introduces probability distributions and their parameters-mean and standard deviation-as measures of expected return and risk. Using sample statistics from historical returns as coordinate pairs, it plots asset classes in mu-sigma space to give a graphical representation of risk and return, and defines dominance. To cement understanding, the text steps through calculations of risk and return statistics from historical price data for Microsoft to mu-sigma space. The second half of the reading covers the co-movement of stock returns using sample covariance, beta, and correlation computed for pairs of risky assets. Scatter plots and linear regression are introduced to calculate beta. The Reading introduces essential portfolio math, with portfolio weights and correlation coefficients. It shows that a portfolio's risk is lower than the weighted average risk of its component assets if the assets are not perfectly positively correlated. This fundamental statistical property gives rise to the economics of diversification. The Reading contains 7 web-based Interactive Illustrations. The first demonstrates the Central Limit Theorem. The second ensures a solid understanding of how returns are calculated from prices and dividends. The third shows how to create a histogram.

The objective of this reading is to introduce two fundamental investment principles that underlie stock valuations and how these principles apply to two popular approaches to valuing stocks: multiples and discounted future earnings.

This Reading combines conceptual frameworks and research-based knowledge to provide practical guidance about how to lead organization change. The Essential Reading outlines key choices leaders must make when managing a change and the common traps that can cause a change effort to fail. It is organized into four sections, each building on the last to provide a roadmap for change that is effectively tailored to the organization and the situation: 1) Diagnosis: Why is change needed?; 2) Design: What sort of change is called for?; 3) Delivery: How can change best be implemented? Who will most likely be affected? What skills and support do leaders need as they manage the process?; and 4) Evaluation: How can the impact of the change be assessed and measured? The Essential Reading closes with a brief discussion of how new practices such as crowdsourcing, open innovation, and social media campaigns are speeding up change in many industries and altering change processes. The Supplementary Reading presents four real-world examples of organizational change in companies (Amazon, Lenovo, Salesforce.com, and Boeing) and a brief overview of stakeholder analysis.