CFO Talks: The Math Behind a Suit

We often tell our customers that Benici suits are an investment that comes with style and professionalism. Today we are going to prove it[1]

It all started off as a joke. As we were sitting around our desk, talking about some new content that we wanted to share with our readers, Nico lamented that we always label our suits as an investment. 

“THERE IS A LOT MORE TO IT THAN MERE FINANCE!” he yelled. 

Of course, I knew he was right; Benici suits are unique, stylish, and at least in our opinion, they have a soul that customers bring to life. Nonetheless, I wanted to make fun of him for some time. I proceeded to pull out a piece of paper, a pen, and a calculator, and replied calmly: “Let me show you, my friend." 

So here we were, between one laughter and the other, trying to calculate the net present value of a Made in Italy suit. 

Let me step back for a second. What is this net present value (NPV) anyway? The concept of NPV is often used in corporate finance to decide which investment to pursue. As an example, do we purchase machine A? Or do we purchase machine B?

Of course, when it comes to buying equipment, much like buying a suit, we cannot simply compare two prices. We need to take into consideration a lot of other factors. As an example. How much maintenance will we have to pay for in the future? How often will we have to replace the machine? How much electricity will the two pieces of equipment need to operate? And so on..

Finance people like to think about this decision in terms of cash flows (i.e. movements of money, whether they are positive or negative) and in terms of PRESENT VALUE.

The concept of present value is needlessly simple. It basically tells us that having $1 today is better than having $1 tomorrow. In this sense, if someone tells you that you are going to receive $100 in a year, you may be happier getting only $95 today. Similarly, when you are paying your telephone bills, you’d much rather do this next year as opposed to today.

Professionals take all the future movements of money (cash flows) discount them and then sum them together to find out which alternative is more attractive. This is exactly what we did in the example before. We took $100, divided it by roughly 1.05, and found out that paying $100 in a year is the same thing as paying $95 today! In this case, the discount rate is 5%.

(Now you can tell your friends that you are a finance master)

 

Anyway..back to our math. We looked at our closet and found a few Made in Italy suits that have been sitting there for roughly 5 years. Of course, we definitely have not been using them on a regular basis, but their condition is quite impressive.

We picked Arguto as the suit that we are going to be using in our example. Featuring a Vitale Barberis wool, and a stunning Birdseye pattern this is definitely one of our favourites. $899 is the price for this made to measure suit in our store. Based on our experience we feel confident that Arguto will accompany you in your daily endeavours for at least 3 years of heavy use.

We then browsed the web to find a cheaper suit that is not Made in Italy, France or England. 375 American dollars (roughly $530 Canadian at the time of writing). WHAT A BARGAIN!

 

. . . Not so fast…

 

Let’s say that you need to replace your low-quality suit every year and a half. Your total cost will amount to $1060. Of course, this comparison is unfair (remember our good old friend the NPV?). So we had to figure out a proper discount rate (that for us amounted to 15%). Dividing that number by 1.15. It turns out that the total cost of the low-quality option is $921. Still higher than a Made in Italy suit, and this does not even take into account style considerations such as look, fit, or the story that you can tell your friends about your suit. 

It's a joke, of course, but one that makes a very god point: high quality garments may actually be cheaper than “disposable” fashion. Besides, we thought our customers passionate about finance and math would enjoy this analytical perspective of a suit, and we wanted to teach something to those of you eager to learn a bit of corporate finance.

Moral of the story? Unless you are a really impatient person, a Made in Italy, high quality suit, is the best bang for your bucks. If you are in fact, very impatient, don’t ever forget that “patientia virtus fortium est” (patience is the virtue of the brave).

If you enjoyed this article don’t forget to share it with your friends and family! Now that your analytical skills are warmed up, you may want to check out our article on how to save up for a suit. Oh..and don’t forget to bring a pen, paper, and a calculator the next time you go shopping. You never know where you are going to find your next investment.

“Benici, bringing made in Italy right to your doorstep”

 

[1] This article is meant to be an enjoyable read for our finance or math enthusiasts. The figures used in our calculations are subjective and based on personal experience.


Jad Azar
Jad Azar

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