Corporate Finance- Making Simple

The main objective of financial management is to arrange sufficient finances for meeting short-term and long term needs. These funds have to be procured at minimum costs so that profitability of the business can be maximized.

Here are some simple steps that can be followed to manage the finances of a corporate

Estimating Financial Requirement

This is the foremost task to determine the short term and long term needs of finance on the basis of its strategic importance. Such an estimate must be screwed to perfection since shortage of funds would have an adverse effect and excess funds may lead in extravagant spending, speculative activities and rising interest figures.

Selecting sources of finance

There may be as many sources of finances such as shares, debentures, financial institutions, banks and public deposits. If funds are required on a long term basis then shares and debentures may help the cause. Financial institutions and banks can be used to finance on a short term need.
If the management does not want to tie its assets then public deposits may used as a source to finance.

Selecting a Pattern of Investment

After the finances are available it becomes very necessary to allocate it properly. Finances must be first allocated to procure fixed assets(Plant and Machinery) and then the remaining must be allocated to meet the working capital requirements(Day to day working requirements like wages, bills etc). Proper techniques like cost-benefit analysis and opportunity costs analysis must be followed before a capital investment.

Proper Cash Management

Cash may be required to purchase raw materials, pay creditors, wages, utility bills etc. Inadequate cash may hamper the production cycle or may limit the scope of some attaining seasonal and contingent advantages. Excess cash may cause funds to remain idle and increasing the cost of capital by rising Interest charges. Hence proper cash management becomes a must by maintaining balance between cash inflows and cash outflows.

Implementing Financial Controls

Various control Devices and techniques must be used in ordinary course of business to monitor the usage of finances. These devices are return on investment, budgetary control, break even analysis, cost control, ratio analysis and cost and internal audit.
Return on investment is taken as the best measure in many corporate

Proper use of Surplus

To gain maximum growth judicious use of surpluses becomes a must. Surplus can be used in diversification, expansion and to declare dividends that would satisfy shareholders and eventually helps in raising market prices of shares.
Ploughing back of profits may be used to finance expansion and diversification but may go against the interest of shareholders. So an optimum balance has to be carved out between the two options.

This simple process is used by businesses to grow into corporate.

Stock market investment – Bull or Bear

Stock and shares, commodities , bonds have always remained on the top list when one heads towards the financial community. How market would play is an all time question whether it comes to an economic crunch or it comes to a boom.

Predictions have proved to be useful techniques helping an investor to take decisions regarding investment and divestment as well. Technical analyst give their predictions based on comparative study with past data, trends, cycles, price movements and ratios of a particular scrip , company, industry or market as a whole

Fundamental analyst forecasts on the basis of intrinsic values of the stock, sales, profit, taxes, growth of the company etc.

However, there are as many factors that has the bearing over share prices and the market as well. Such factors include national and international economic health in terms of GDP, inflation, prevailing tax rates , Foreign direct investments , foreign institutional investment, foreign exchange, climatic conditions, political situations, company’s performance in terms of profit and loss, reserves, capital structure, projects and many more.

Besides all such factors I would like to rate “Sentiments” as the driving factor which indicates the market to be “Bear” or “Bull”

Here are some guidelines which would help my friends who want to have some investment in the stock market. I am sure it is going to help you a lot as it helped me reaping good returns .These guidelines have come from market experts and ten long years of my investing experiences and analysis.

Be sure- Investing, speculating or gambling

The very first rule of the market is to understand your own intentions whether you will behave as an investor to reap steady returns gradually, with nominal risk on long term investment, or speculator to reap fast returns with high risk on short term investment or as a gambler to earn abnormal profits with infinite risk irrespective of the time horizon.

Study the market

Having clear intentions of your stand , market study becomes the most important aspect of investing. Collect information about the economic conditions of the country and projections of its future movements. When economic conditions such as GDP , saving ratios, foreign exchange reserves of the country are stable and increasing it’s the right time to invest and vice a versa. Steady growth in economy helps out investors and fluctuations favors the speculators

Do not put all eggs in one basket

It is the golden rule of the market and investment. Be sure of what you are investing in. Making investment blindly in every scrip would bring your portfolio to a no profit no loss situation and even huge losses. Be very choosy about scrip by looking to its past paerformances, dividend rates, expectations of further growth, recent projects and its synergy with other industry performances.

Wait for the right time

Right time to sale and right time to purchase is the factor which will benefit you the most.

Invest at a time where the share prices are to maximum low (bottom line) and divest when it stop rising up. But the point is how to determine the optimum time? This can be determined by reading cycles of that individual stock in various economic conditions.

Boom triggers investment and depression aggravates divestment.

However , recession and depression in the economy can also be an ideal time to start investment or even speculation because of the fact that shares can be availed at all time low prices and then tends to shoot up. The only fear factor is chances of delisting which is very low in case of Big player and even for blue chips.

Tips

Here I am talking about advices one should take from equity research companies, brokers and investment houses. They at times really get hold of some very useful and internal information about a particular scrip or company which will be fruitful for investing.

I don’t know how to succeed but I know overconfidence is the key to failure. It is better to be equipped before war rather than asking for a sword in middle of the battlefield.