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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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This article explains the logic behind the fundamental principle of corporate finance which states that investing decisions must be considered independent of financing decisions.

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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!

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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.

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This article explains the distinction between a company’s 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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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This article explains the strategy of delaying profitability. It explains how today’s 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.

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