Conventional Business Models In practice, most business models consist of these conventional models either individually or combined. Common business models are described in the table below: In practice, most business models consist of these conventional models either individually or combined….

A business model outlines how a business is organized to deliver value to its customers. A business model encompasses the following aspects: Target customers of the business (“who?”). Products or Services offered by the business (“why and often “why”). Where…

The target capital structure of a company refers to the capital the company is striving to obtain. In other words, target capital structure describes the mix of debt, preferred stock, and common equity expected to optimize a company’s stock price….

A firm’s capital structure is the mix of debt and equity it uses to finance its investments. A capital structure decision aims to determine the financial leverage to maximize a company’s value by minimizing the weighted average cost of capital…

Both internal and external forces influence a corporation’s capital structure, varying among countries and sectors. These factors include: $$ \begin{array}{l|l} \text{Internal factors} & \text{External factors} \\ \hline \text{Business model characteristics} & \text{Market conditions} \\ \hline \text{Cash flows and Profitability} &…

Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date. In the same vein, real options are capital allocation options that allow managers the…

Capital Allocation Principles Although the known analytical tools and investment decision criteria are quantitative and clear-cut, there is significant room for errors and misjudgments. To enhance the decision-making process, it is essential to adhere to certain fundamental capital allocation principles…

Capital allocation describes the process companies use to make decisions on capital projects, i.e., projects with a lifespan of one year or more. It is a cost-benefit exercise that seeks to produce results and benefits greater than the costs of…

Capital investments (or capital projects) have a life of one or more years and are presented on the balance sheet as long-term assets. There are four main types of capital investments: Going concern (or maintenance) projects. Regulatory or compliance projects….

The main objective of liquidity and working capital management is to maximize a firm’s value while ensuring ready access to capital to pay creditors and run day-to-day operations. Reducing the cash conversion cycle, gauging liquidity requirements, and reducing surplus funds…