Articles on Corporate Finance
This article introduces us to the two main duties of a financial manager. It introduces the role of corporate finance as being two fold. The first role is about raising funds to enable the functioning of the company while the second role is about effectively deploying these funds.
The concept of nominal and real value is the building block of time value of money. It establishes the fact that nominal sums of money received in different periods should not be considered of the same value since the real value of money undergoes a change over time.
Corporate finance is based on a variety of formulas and approaches. But, these formulas and approaches have themselves been derived from 2 fundamental rules. They have been explained in this article.
This article explains the basics of present value and future value. These are the fundamental concepts on which the field of corporate finance rests. Examples have been provided to illustrate the calculations.
This article explains the how the net present value calculations are done. It also explains how the NPV rule can be used to make decision making.
Compound intervals are an important concept related to compounding and discounting of cash flows. This article explains the users about the different types of compounding frequencies, their calculations as well as their interpretation.
This article explains the concept of negative interest rates. It also explains the bizarre situations that can arise if negative interest rates are allowed to prevail over an extended period of time.
This article explains the consequences of negative interest rates. It explains how this will make people indulge in undesirable behaviors which will be detrimental to the economy. It also explains how governments may try to overcome this issue. It also explains how negative interest rates might infringe on the rights of the people.
Opportunity cost of capital is a fundamental concept in corporate finance which affects valuation of projects. This article provides basic conceptual information on the subject matter.
This article is a primer about the details that need to be considered while valuing cash flows in multiple periods. It explains how the nature of cash flows affects the calculation as well as why multiple discount rates may be a necessity.
This article explains the concept of perpetuity i.e. a never ending stream of payments. It also explains to us how to attach a finite value to this seemingly infinite series of payments.
The growing perpetuity concept is the basis for many financial calculations. This article provides some basic information on the same along with providing information about how it affects calculation of stock prices.
Annuities are a very important concept in corporate finance. This article explains the basic concept of an annuity and also gives a brief overview about amortization.
This article explains the conceptual difference between an ordinary annuity and an annuity due. It also gives examples that explains step-by-step regarding how these calculations are done.
This article explains about the various types of annuity calculation. It gives examples as to where they can be used as well as partially displays how the calculation is done.
This article explains the fundamentals of bond valuation. It details the procedure of bond valuation step by step and also uses an illustration to show how bond values are calculated.
This article gives an introduction to bond market conventions. It tells us about how certain information may be contained in the question even though it is not explicitly mentioned.
This article explains all the important relationships that exist between interest rates and bonds. The logic behind the inverse relationship is also explained and it has been demonstrated with the help of an example.
This article explains the two basic ways in which people value shares. One way is based in rational thought and analysis while the other is more emotional and intuitive. A basic introduction is provided to both the models.
This article first discusses the problems that arise while valuing a stock which is basically an infinite series of cash flows. It then focuses on the two step model that is used to value stocks and come up with a finite value for an infinite series.
This article explains to the reader that stock prices are subjective. They are dependent on the various assumptions that the analyst explicitly or implicitly makes. These assumptions as well as their effects have been listed down in this article.
This article explains the concept of cost of equity. It then shows how the formula for cost of equity is derived. It also explains how the various components to be used in the cost of equity formula are derived.
This article describes payback period. The payback period is an alternate metric that can be used to judge investments in place of NPV. This article then talks about the pitfalls of the payback period.
This article provides a basic introduction to the Internal Rate of Return (IRR) number. It talks about the interpretation of this number, how it can be calculated and how it can be applied to making investment decisions.
This article describes the Internal Rate of Return (IRR) rule and the pitfalls that companies usually come across when they try to use this rule as an exclusive basis for making decisions about their investments.
This article talks about how some assumptions made in capital budgeting could make it invalid in real life. Then the concepts of capital rationing and profitability index are introduced.
This article explains the different types of capital rationing. It explains the concept of soft rationing which is an internal matter to the firm. It also explains the concept of hard rationing which is levied by external investors.
This article explains the concept of capital controls. It lists down some of the common types of capital controls that are implemented across the world. It then provides the upside and downside of capital controls along with suitable examples.
This article provides a primer on how to estimate cash flows for capital budgeting purposes. It talks about the adjustments that need to be made to the accounting profit as well as the concept of incidental costs.
This article provides information about how opportunity costs and changes in working capital must be treated while estimating cash flows. It also shows how the treatment differs from what it would have been in conventional accounting.
This article explains the treatment of sunk costs as well as allocated overhead costs. The emphasis is on explaining how these values are different then what we would determine with common sense.
This article explains why the treatment of inflation is so important to a capital budgeting exercise. It then explains how the calculations ideally ought to be done and gives an easy approximation to a complex rule.
This article explains about the concept of depreciation tax shields. It explains how depreciation indirectly affects the cash flow calculations and why accelerated depreciation methods are preferred to straight line methods.
This article introduces the reason why equivalent annual costs are required in capital budgeting. It demonstrates the problem with the help of an example and then shows how equivalent annual costs can be used to solve the problem.
This article explains the logic behind the fundamental principle of corporate finance which states that investing decisions must be considered independent of financing decisions.
This article dismisses the myth that capital budgeting is a strict procedure that lacks creativity. A couple of examples are given to show how out of the box thinking and creativity can be applied to corporate finance too!
This article explains the concept of creative destruction. It explains the entire story and lists down why this theory is invalid. The logical flaws present in the theory are explained in detail in this article.
This article explains the distinction between a companys total risk and a projects risk. It then tells us why project risk is the appropriate measure to calculate the discount rate as opposed to the company risk.
This article discusses the implications of the Western societies drowning in debt for the future generations. The key theme in this article is that debt has to be paid back someday or the other, and hence, the present generation has to be aware of the burden that they are inheriting from their forbearers. Further, it is important for those who are starting their careers or are studying to live sustainably and be innovative and creative so that solutions to the present crisis can be found.
This article discusses how credit ratings agencies do their job and the perils of not getting it right as well as the benefits of proving correct. The key theme in this article is that credit ratings agencies are an important aspect of the financial system and hence, they perform a valuable function.
This article is a commentary on the recent stock market slump and the tanking of the currencies of the emerging markets. Apart from this, the volatility in the sovereign bond market and the slowing of the Chinese economy are also discussed. The common theme that runs through all these events is the pumping of financial markets around the world with easy money and excess liquidity courtesy the money printing by the central banks of the world.
This article introduces the readers to the funds transfer systems for domestic and international payments. The key theme in this article is that behind each funds transfer request lies a complex web of relationships between financial institutions and banks that underpin the process as well as the criticality of the international funds transfer system to the global economy.
This article discusses the importance of proper KYC (Know Your Customer) norms and procedures in view of the increasing instances of banks around the world engaging in money laundering and other activities. The key theme in this article is that the cardinal principle in any financial investigation is follow the money trail and in this respect, having reliable, accurate, and updated KYC norms help the regulators in tracking down the guilty.
This article introduces the readers to the various arms of banking including the retail, corporate, investment banking, and private banking. The key theme in this article is the fact that the size of the deals and the volumes of the deals are different in each category as well as the target customer segment that each arm of the banks deal with.
Though many of us have stopped visiting banks and instead transact online, location and geography are still important for banking. This article explains the reasons for such importance by considering the aspects that make banking dependent on geography. This article can be read as a succinct overview of the Power of the Place for banking.
In this article we discuss the role of a central bank, its functions. The key points covered are an introductory primer to the role of central banks in the modern economies.
This article explains the concept of lease rental discounting. It also explains its features and lists down the type of people that are likely to use lease rental discounting as a financing arrangement.
This article explains the nuances of lending against intangible collateral. It explains why there is a need for such loans, highlights the problems and offers solutions.
This article explains the irony of the Agricultural Produce and Marketing Committee (APMC) Act in India. It explains how this act drives the formation of a legalized cartel which jacks up food prices while supposedly claiming to be working towards reducing those prices.
Microfinance is considered to be a unique business model wherein philanthropy and free markets are not at odds. This article explains the concept of microfinance and lists down its advantages.
Microfinance has been hailed as the business model that will eradicate poverty. However, this article exposes some of the most sinister motives behind the microfinance business.
This article explains, in brief, the process followed by the company while conducting their Initial Public Offer. It also talks about the possible roadblocks that can be faced in the IPO process.
This article is a thorough analysis of the advantages and disadvantages of going public. Benefits which can be measured as well as intangible benefits which cannot be measured are both listed down in this article.
This article explains that there is no logic behind the sky-high valuation given to Snapchat Inc. It also explains why Snapchat’s business model is fundamentally weak and how it will face challenges in the future.
This article explains the strategy of delaying profitability. It explains how todays tech firms are different from the industrial era firms and how the rules have changed. It also explains some of the common pitfalls in following this approach.
This article explains the economics of tax avoidance. It explains how popular companies like Apple and Amazon evade taxes. It also lists down the reason why governments are unable to stop this tax avoidance.
This article lists the actions taken by the Reserve Bank of India after the Nirav Modi scam. It also explains how these actions will negatively affect the Indian importers.
This article provides a historical context on the Panaya deal. It explains how this small deal ended up shaking the IT behemoth named Infosys. The conflict of interest issue has been described in detail in this article.
This article explains the details of the Flipkart and Wal-Mart merger. It explains how this deal benefits both parties. It also lists a couple of issues that the merged company is likely to face in India.
This article explains the details about the Saudi Aramco IPO. It also explains why listing the shares of the New York Stock Exchange will not be possible for this gigantic corporation.
This article explains the concept of initial coin offering. It also explains how initial coin offerings are different from initial public offerings. Lastly, it lists down the flaws and issues being faced by initial coin offerings.
This article explains the cancellation of the Qualcomm Broadcom deal thanks to an order by CFIUS. This article explains how the Qualcomm takeover deal was not related to national security concerns. It also explains how American economy stands to lose thanks to this decision.
This article explains the concept of demerger. It also explains the different types of demergers. The advantages of demergers as well its workings have been explained in detail in this article.
This article explains the concept of holding companies. It also explains the major advantages and disadvantages linked with holding companies. The article also explains why this type of corporate structure is more favorable to the larger corporations.
This article describes the economics of lawsuits. It also explains why these lawsuits do not actually benefit investor interests equally. Lastly, the article describes how big hedge funds use lawsuits to gain at the expense of smaller retail investors.
This article explains why the general sentiment in India is against Wal-Mart. The article lists the problems that Wal-Mart has had to face in order to gain entry to the Indian market. Lastly, it explains how Wal-Mart can earn some goodwill by helping Indian retailers expand their business.
This article explains the impact of tariffs on oil and gas industry in America. The dependence of American oil and gas industry on imported steel has been explained. The article also discusses how these tariffs will end up hurting the oil and gas industry without benefitting other sectors of the economy.
This article explains the concept of venture debt and how it applies to early-stage startups. It also lists the various benefits of using venture debt to fund startup companies.
This article explains the quantum of dependence that automobile firms have on cheap debt. It explains how the interest rates affect both the sales as well as the costs that these companies incur. Facts and figures related to the previous debt crisis in 2008 have also been shared.
This article explains how companies must communicate with Wall Street. It provides general pointers regarding the do’s and don’ts that need to be followed while interacting with the investor community.
This article provides details about how a rise in interest rates will affect the United States Treasury. It explains why interest rates are likely to double in the future. It also explains why this will create a big problem since the amount owed by United States Treasury has more than doubled under the Obama administration in the past few years.
This article explains the current financial situation at Tesla. It lists all the factors affecting the situation and provides an analysis as to why Tesla is facing possible bankruptcy.
This article explains the key issues behind the Toys R Us bankruptcy. It also provides a brief history of the company before chronicling its eventual downfall.
This article explains the concept of the soda tax. It also explains the advantages and disadvantages of levying this tax.
This article enumerates the reasons why Tesla should go private. However, then it lists down the reason why it is practically impossible for Tesla to delist from the stock exchange.
This article explains why the Xiaomi IPO failed. It lists some of the reasons which led to the failure of one of the biggest IPO’s of 2018.
This article explains why the shares of Infibeam Avenues fell over 73% in a single day. It also explains the role that a Whatsapp message played in bring out about this sudden and unprecedented downfall.
This article explains the concept of index funds. It also explains the main reasons why index funds are a better investment option when compared to mutual funds.
This article explains the impact of Sears’s bankruptcy. The different stakeholders of Sears have been listed, and the impact of the bankruptcy on them has been explained in detail.
This article explains the concept of lemon socialism. It explains how big firms bag mega profits on their own but when it comes to losses they ask for bailouts sponsored by taxpayer money. Several examples from different parts of the world have been given to prove this point.
The article explains the background of IL&FS as a company. It also explains the reasons which led to financial trouble at IL&FS. The issue of systemic risks pertaining to the company has also been discussed in this article.
A healthy corporate regulator battle is good for the economy. However, problems arise when the balance is skewed in favor of the corporates. Moreover, while regulators should not be overbearing, at the same time, they must not also succumb to the vested interests. Taking the recent case of the RBI and the Banks in India, this article argues that it does not portend well for the future of the country. We suggest that the voters and the citizens of tomorrow to follow how corporate regulator tussles play out and have a say in restoring the balance by voting during elections.
Bankruptcies are normal for free market economies since booms and busts are cyclical features of capitalism. Thus, there must be systems in place to help the bankrupt firms find their feet again and ensure that justice is done to all stakeholders. Drawing from Corporate Law theories and using real world examples, this article argues that bankruptcies must be occasions for rejuvenation rather than relapse. Further, we also make the case for effective laws to be put in place to ensure orderly aftermaths of bankruptcies.
This article explains the new shopping phenomenon called Singles Day. The article explains how Singles Day was started in 2009 and how it has quickly come to be the biggest shopping event in the entire world. The benefits that Alibaba derives from Singles Day have also been listed in this article.
This article lists the various businesses that Uber is currently engaged in. It also explains how all these businesses are focused around Uber’s core competency i.e. the ability to efficiently operate an app-based service economy.
This article explains the 1MDB scandal. It explains the impact of this scandal on the Malaysian economy. It also explains the role played by Goldman Sachs and also the grave economic consequences that the stalwart finance firm is likely to suffer as a result.
This article talks about the financial impact of the divorce of Jeff and Mackenzie Bezos, who are the owners of Amazon. It lists the effects that this divorce is likely to have on Jeff Bezos personal wealth as well as the wealth of the shareholders of Amazon.
This article tries to analyse the argument that index funds are not as good for the Indian context as they are for the American context. Many myths related to index funds in India have been debunked in this article.
This article explains how Amazon is destroying the market for brick and mortar stores. It also explains the various strategies that can be used by brick and mortar stores to combat this offensive from Amazon.
This article explains why the Fed is following the policy of consistently raising interest rates. The possible motives of the Fed have been discussed in this article. The article also explains why Donald Trump wants the rates to be dropped.
This article explains the problems associated with the Facebook, Whatsapp and Instagram merger. The threats to user privacy have been discussed in detail. Other legal threats like the Antitrust law have also been briefly touched upon.
This article provides information about the proposed Facebook, Whatsapp, and Instagram merger. It explains how these apps came under the same corporate umbrella. It also lists the benefits that Facebook is likely to obtain if the three apps are merged.
This article provides details about the alleged scam that has happened in the Dewan Housing Finance Limited (DHFL). It explains the mechanism that has been used by the promoters of DHFL to siphon close to $5 billion of public money.
This article provides a financial background of the fracking industry. It explains why so much money was invested in the industry in the first place. It also explains why the fracking industry faces a grim future given the situation in the external markets.
This article explains the alpha-beta strategy which is being used by e-commerce companies such as Flipkart and Amazon to circumvent the e-commerce regulations in India. A detailed description of the structure of shell companies being used to avoid the regulation has also been provided.
This article explains how a subprime auto loan crisis might be brewing in America. It explains some of the factors that influence the origination and distribution of these subprime loans.
This article explains the precarious financial situation being faced by Jaguar Land Rover (JLR). It describes the situation in detail and also lists the factors that have brought about this downfall.
This article describes the current situation at Kraft-Heinz. It traces some of the policies that were implemented at Kraft-Heinz and links them to the predicament that the company is in today. It also discusses the future challenges facing Kraft-Heinz.
This article explains the issue of regulation of ride sharing apps such as Uber and Lyft. It explains why the old model of regulation is outdated and why new regulation should address certain new concerns which have become important after the emergence of such apps.
Is it time for regulatory action on the Tech sector? Have the Tech Giants become Too Big for their Own Good? What does the history of business teach us as far as regulatory actions are concerned? Moreover, will regulation kill innovation and creativity? These are some of the questions that would be examined in this article. We argue that a balanced approach is needed taking into account the questions mentioned above.
This article details the fall of Anil Ambani and his company Reliance Communications. The failed deals, as well as bankruptcy proceedings, have been explained in detail.
This article explains the concept of litigation finance. It also lists down some of the pros and cons associated with litigation financing. The current market sizes of litigation financing, as well as its rapid growth rate, have both been discussed in this article.
This article explains the financial reasons which make recycling of plastic unviable. It also lists some measures which can be taken to reduce the volatility in the plastic market and make recycling more attractive.
This article explains how the payment processing market works. It explains why MasterCard and Visa have a duopoly over the market. It also explains how challenger companies like American Express and RuPay are trying to gain market share.
This article provides some details about the Lyft IPO. It lists the reasons which support the argument that the Lyft IPO is overpriced.
This article explains why alliances between cab aggregator companies and automobile companies are increasing. It also explains the benefits derived by each party. Lastly, it explains the likely direction that such alliances will tale in the future.
This article explains the details of the divorce deal between Amazon founder Jeff Bezos and his wife, Mackenzie Bezos. It describes how this divorce has been an anti-climax as the deal has been worked out amicably without any corporate battles. It also explains why Jeff Bezos retaining control over Amazon is good news for the shareholders.
This article describes the lawsuit between Apple and Spotify. It explains how Spotify is alleging that Apple is levying unfair charges on the firm. It also lists the main arguments that Spotify has made against Apple.
This article provides a detailed background of the L&T Mindtree takeover saga. It also explains how internal factors within L&T and other regulatory factors have been the real reason behind this acquisition bid.
This article explains how Initial Public Offers affect competitive firms in an industry. The impact of IPO’s on competitive firms has been listed and described in detail.
This article explains why cost-cutting in certain areas may actually end up increasing costs over the long run. An indicative list of such areas and how the lead to cost overruns have been explained in detail.
The recent 14 hour outage of Facebook has had a massive impact on its financials. The article examines in detail about the economic consequences of this outage.
This article describes the legal battle between Apple and Qualcomm. It explains the reasons behind the multiple lawsuits that the companies are filing against each other. It also explains the economic effects of this lawsuit.
This article explains the concept of cross border credit reporting. It explains the problems that occur because of a lack of cross border credit reporting. It also explains what challenges would have to be faced in order to make cross border credit reporting a reality.
This article explains why so many unicorns are opting for Initial Public Offers (IPO) at the same time. The benefits that might accrue to the shareholders and to the employees of start-up firms, as a result of an IPO, have been listed in this article.
This article describes the fallout of Wow air, a low-cost carrier, based in Iceland. It also explains how this has affected the entire economy. The detailed analysis of the effects as well as the steps to be taken to lessen their impact has been listed in this article.
This article explains the business model of WeWork. It also explains why WeWork is not really a technology company. Lastly, it lists some of the most prominent risks that WeWork is likely to face in the near future.
This article explains the concept of private securities offerings. It also explains the reasons why people invest in these securities. Lastly, problems related to private securities have also been explained in this article.
This article provides information about the breakup between Amazon and FedEx. It explains why, contrary to popular belief, this breakup may actually be good for FedEx. It also explains the impact it will have on competitors such as UPS and United States Postal Service.
This article is based on Prof Davis’ book called “The Vanishing American Corporation.” It explains why the odds are stacked against bigger corporations. It also explores the future of the workforce if the mega-corporations were to actually become extinct.
This article explains the details of the GAP-Old Navy breakup. It provides financial details about the company and also explains why the breakup is in the best financial interest of both entities given the current situation.
This article provides details about Apple’s acquisition of Intel’s modem business. It also provides information about how this acquisition is in line with Apple’s long term strategy of building a formidable 5G product. The role played by the Apple-Qualcomm feud has also been explained in this article.
This article explores the different reasons firms are using to engage in mergers and acquisitions nowadays. Some of the new reasons behind M&A activity have been listed down in this article.
This article provides details about the CBS Viacom merger. It explains the competitive landscape in which CBS and Viacom operate. It also explains how this landscape has made it mandatory for the companies to merge if they wanted to survive in the long term.
This article explains the regulatory hurdles facing the T-Mobile and Sprint Wireless merger. It also explains how both these companies are using the unconventional solution of creating another competitor in order to convince the regulators to allow them to merge their business.
This article explains why many American companies are holding on to huge piles of cash. It explains the possible motives behind accumulating a $2 trillion stockpile. Lastly, it also explains why a tax holiday may not solve the problem.
Authorship/Referencing - About the Author(s)
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