The ten rules of corporate finance
1. Debt is a lever, not life support
Debt magnifies returns and imposes discipline - but only when it’s comfortably covered. Too much, and it strangles the business. Cover debt first, or nothing else matters.
2. The dividend isn’t garnish; it’s the meal
In mature companies, it is the valuation floor: when trust fails, the market values only the dividend and its cover. In growth companies, dividends are deferred, not irrelevant - tolerated only if reinvestment opportunities compound faster than cash returned today.
3. Cash is truth, earnings are gossip
Earnings can flatter; cash doesn’t lie. Growth without cash conversion is just noise with a PowerPoint. Investors pay for cash, not stories.
4. Strategy is just the projects you back
Your strategy is the sum of the projects you back. Fund the existential ones that keep you alive. Reject counterfactual cases built on imagined disasters. For the rest, demand proof: a 5-year IRR above WACC, delivered in hard cash - and only once debt and dividends are safe.
5. Perpetuity beats DCF theatre
A simple perpetuity formula is more honest than a bloated model. Better to argue assumptions in the open than hide them in spreadsheets. Complexity is camouflage.
6. Precision is vanity; discipline is sanity
WACC doesn’t need decimal places. ~8% for the stable, ~10% for the risky, +25% for adjacencies. Rough and disciplined beats exact and delusional.
7. Capital is plentiful, but always expensive
Markets will fund good opportunities. Private equity is far costlier and best left as a last resort. However abundant the supply, treat capital as expensive - because shareholders demand it earns.
8. Idle cash is wasted cash
Cash that isn’t invested or returned is dead weight. If you can’t use it productively, give it back. There is no shame in discipline; only in hoarding.
9. Revenue synergies are hope; cost synergies are proof
In M&A, synergies aren’t optional. If they aren’t real, don’t do the deal. And don’t forget the grind: carve-outs require grit, not slogans.
10. Credibility is capital
Markets forgive mistakes, but not lies. Lose credibility and you become a show-me stock: valued only on dividend cover, every other promise discounted to zero.