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 greater than the costs of…
Types of Capital Investments
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: While growth projects and other projects are initiated to…
Managing Working Capital and Liquidity
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…
Liquidity
Liquidity is the degree to which a corporation can satisfy its short-term obligations using cash flows and assets that can be quickly converted into cash. Liquidity management describes a company’s ability to generate cash whenever it needs to meet its…
Cash Conversion Cycle
A company’s business operations typically consist of a series of consecutive stages. For example, consider a manufacturing company whose operating cycle includes the purchase of raw materials, inventory production, sale to customers, and debt collection, as shown below: A company’s…
Potential Risks of Poor Corporate Governance
Weaknesses in corporate governance practices and poor stakeholder management processes expose a company and its stakeholders to several risks. On the contrary, effective corporate governance practices and strong stakeholder management processes can benefit a company’s stakeholders. Adopting effective rules and…
Corporate Governance and Mechanisms to Manage Shareholder Relationships
An appropriate corporate governance structure considers the rights, responsibilities, and powers of each stakeholder in a corporation, whilst meeting the corporation’s objectives. Corporate Reporting and Transparency The principles of governance are fundamentally based on corporate reporting and transparency. A company’s…
Principal-Agent Relationship
The term ‘principal-agent relationship’ or simply ‘agency relationship’ describes an arrangement where one entity, the principal, legally appoints another entity, the agent, to act on its behalf by providing a service or performing a particular task. In most cases, there…
ESG Considerations for Corporates
Debt and shareholders are increasingly shifting from a shareholder to a stakeholder perspective by prioritizing ESG (Environmental, Social, and Governance) factors when choosing where to invest. As such, corporate issuers need to incorporate these factors when setting their goals and…
Corporate Stakeholders
A stakeholder is any individual or entity with a significant interest in a company. Corporations have a complex ecosystem that includes not only the shareholders but also other stakeholders. These stakeholders mutually relate to the company for economic success and…
