Net Present Value (NPV) and Internal Rate of Return (IRR)
Several important decision-making criteria are used to evaluate capital investments. The two most comprehensive and well-understood measures of whether or not a project is profitable are the net present value (NPV) and the internal rate of return (IRR). Other measures…
Process and Principles of Capital Allocation
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 which are greater than the…
Types of Capital Investments Made by Companies
Capital investments are undertaken to either maintain the existing business or/and grow it. There are four main types of capital investments: Going concern (or maintenance) projects. Regulatory or compliance projects. Expansion projects. Other projects. While growth projects and other projects…
Modigliani–Miller Propositions
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 (WACC). $$…
Short-term Funding Choices for a Company
The objectives of a short-term borrowing strategy include the following: Ensuring that there is the capacity to handle sudden cash needs. Maintaining sufficient credit sources to fund cash needs. Ensuring that the interest rates obtained are competitive. Ensuring that a…
Environmental, Social, and Governance Investment Approaches
ESG considerations are incorporated in investment choices through responsible investing. The essence of doing so is to reduce risk, preserve asset value, and prevent unfavorable social or environmental effects. The concept of sustainable investment involves choosing assets and businesses on…
Environmental, Social, and Governance Considerations in Investment Analysis
A variety of performance metrics may be used to assess risks related to governance concerns. Among others, such concerns include ownership structure, board independence and composition, and remuneration. Analysts and stockholders have long recognized the risks associated with bad governance….
Impacts of Corporate Governance and Stakeholder Management
Weaknesses in corporate governance practices and stakeholder management processes expose a company and its stakeholders to several risks. On the contrary, effective corporate governance and stakeholder management practices can yield benefits for a company’s stakeholders. Adopting effective rules and implementing…
Corporate Governance and Stakeholder Management
Stakeholder management emphasizes the need for a company to consider the needs of all its stakeholder groups. It aims at laying the structure for stakeholder groups to exercise influence, control, and protect their interest in a company. Corporate governance lays…
