Edge Gave us an Edge

Geoff Edge was a successful business person and a pioneer in the application of management quantitative systems. Included were the application of operations research methodologies. He participated in the introduction of computers to many businesses including a General Electric main frame to a Canadian chemical and textile company following its use at Expo 67. He was Chairman of the National Energy Board, a further measure of his analytical and business skills. An important legacy is his disciplined approach to the analysis of capital expenditures.

While likely not a concept that originated with him, Geoff brought the methodology to the attention of investment professionals around the world. Managers embraced the ideas largely because of its logic and simplicity. Financial analysts adapted it to many applications. Managers everywhere were delighted with the modeling capability and ease of presentation. A wonderful guide was written by Mr. Edge called A Practical Manual on the Appraisal of Capital Expenditure published by the Society of Industrial Cost Accountants of Canada. Those suffering from library envy will have to be satisfied with knowledge that the author of this blog has a signed copy.

Financial managers frequently employ its use to augment company evaluations whereby one can estimate the present worth of its share price by discounting forecasted future streams of earnings and cash flow. We all know that the forecasts are less than perfect but the range is important. Multiples of cash and flow and earnings can be applied to these forecasts and a variety of share prices estimated. Comparisons among competing investment can be made because of the application of a common analytical tool. One will frequently hear about a discounted dividend model. This amounts to the same approach where dividends are a primary evaluation tool. Discounted cash flows are a marvel in concept and a portrait in simplicity.

So let us take a moment to acknowledge Geoff’s contribution to our industry. Edge gives us an edge.