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What is Corporate Finance?

Posted on by Imarticus Learning

Corporate finance is amongst the pillars of any business and value creation, decision making in finance, and capital structure all come under corporate finance. It helps to finance investments, maximise the returns on financial assets, and secure sustainable growth for companies. From capital budgeting and risk management to mergers and acquisitions, corporate finance either makes or destroys the finance destiny of a business.

These professionals need top-level analytical and finance skills to work in sophisticated economic environments. Financial analysis is one of those disciplines that can unveil future experts and hone the skills to become top players in corporate finance. Corporate finance data are required by corporations to stay financially fit, maximise shareholder wealth, and attain long-term profitability.

Key Functions 

1. Capital Budgeting

  • Investment opportunity analysis to maximise return
  • Financial planning according to project viability
  • Optimisation of utilisation of company’s funds
  • Estimation of risk probability of humongous investments

2. Capital Structure Management

  • Optimisation of company’s operations using equity and debt capital
  • Optimisation of shareholders’ wealth and cost of capital
  • Risk-return relationship of financial structures
  • Operation of leverage of a firm according to its financial policy

3. Working Capital Management

  • Working capital management using short-term liabilities and assets
  • Maximisation of effective operating cash flow
  • Application of liquidity and inventory concepts
  • Accounting for accounts receivable and accounts payable from the cost angle

4. Risk Management

  • Identification of risk and minimising finance risk
  • Hedging instruments used for asset protection
  • Protection against market and interest rate volatility
  • Preparation of the financial crisis contingency plan

5. Financial Planning and Analysis (FP&A)

  • Building strong financial forecasts
  • Profitability analysis and variance reporting
  • Facilitating strategic decision-making through finance
  • Application of finance data to gain business effectiveness and improvement

What is Corporate Finance and Why is it Important?

Corporate finance provides financial capability to business in order to achieve objectives. Power of finance within the domain of decision-making influences:

  • Business Expansion & Evolution
  • Survival & Profit
  • Shareholder Worth & Market Image
  • Financial Standing & Risk Control
  • Optimal Leverage of Financial Assets
  • Market Share Competitiveness & Strategic Position

Experts in this field experts can provide business success based on the finance data to make intelligent decisions. One who is enthusiastic about learning financial analysis would be best suitable for this career, and professional career opportunities in new industries are found in finance professional career opportunities. Experts are recruited even by most corporations to operate their business successfully.

Career Opportunities 

1. Financial Analyst

  • Initial risk analysis and financial analysis
  • Guarantees investment choice on facts
  • Preparation of financial statements of corporate firm’s stakeholders
  • Guidance of financial performance and corporate firm’s strategy

2. Investment Banker

  • Offer restructuring guidance and mergers and acquisitions
  • Assists corporates with fund-raising in debt and equity
  • Constructs value financial models of companies
  • Maintains close co-ordination with the management of a corporation to frame long-term financial strategy

3. Risk Manager

  • Monitors and follows financial risk
  • Acts to safeguard assets of a company
  • Ongoing analysis tracks movement and trends in economies and markets
  • Tracks market risk systems, operations risk systems, and credit risk management systems

4. Treasury Analyst

  • Tracks companies’ cash and liquidity
  • Refines financial planning for stability
  • Manages bank relationship and finance compliance
  • Ensures regulatory policy compliance on finances

5. Chief Financial Officer (CFO)

  • Manages operation and finance planning of the company
  • Prescribes cost control policy and capital expenditure
  • Makes decision-making and planning on finance
  • Guides long-term financial growth plans of the company

How a Financial Analysis Course Can Help?

Taking a financial analysis course can offer you:

  • Comprehensive Knowledge: Introduction to basic finance concepts such as valuation, risk measurement, and capital planning.
  • Practical Training: Hands-on training in financial modeling and investment analysis.
  • Professional Growth: Improved career opportunities in finance, investment banking, and risk management.
  • Industry-Specific Skills: Application working such as Excel, PowerPoint, and simulation learning in actual finance situations.
  • Career Networking Opportunities: Money mentorship and industry networking.
  • Employment Guarantee: Placement assistance in most of the courses, ensuring career protection to the students.

With dedication and market savvy skill, financial analysis course is a passport to a successful career in corporate finance. Financial analysts are never out of work in masses, and the time is ripe to follow this career.

FAQs

1. What is corporate finance in simple terms?

Corporate finance is the way corporations organise their financial operations, such as investments, financing, and budgeting to be healthy and profitable.

2. Why is corporate finance important for a company?

It allows corporations to make good financial choices, maximise capital, and maximise shareholder wealth when financially sound and competitive.

3. What skills are needed for a career in corporate finance?

The key qualities are application skills in finance, financial modeling, data analysis, strategic choice, investment planning, and managing risk.

4. How does corporate finance differ from accounting?

While accounting involves postings in the books of a company, corporate finance involves planning, strategy, and decision-making for creating maximum value in a company and future financial growth.

5. What are the common job roles in corporate finance?

Typical career titles include Financial Analyst, CFO, Risk Manager, Investment Banker, Treasury Analyst, and Financial Consultant.

6. How can a financial analysis course benefit my career in corporate finance?

A financial analysis course equips you with the training, education, and certification you need to acquire lucrative corporate finance specialist positions.

7. What industries hire corporate finance professionals?

Banking, investment companies, technology, health care, multinational corporations, and fintech companies hire corporate finance specialists.

8. Can I transition to corporate finance from another industry?

Yes, career changers mainly transition to corporate finance by getting the right certifications, company experience, and a financial analysis course.

Conclusion

Corporate finance is an area with so much emphasis placed on making companies financially profitable. From risk management to investing to strategic management, corporate finance is it all. Corporate finance has the mandate of making companies accountable so that they can develop and thrive.

If you want to become a successful career in finance, financial analysis course can make you capable enough to be a professional in the area. Under job guarantee programs, profession-specific professional courses, and on-job training, corporate finance scope in the future is very broad and very lucrative. With each elapsed year, the requirement of finance professionals becomes more, and thus it is a profitable career for one who wants to seek a decision-making and finance planning career.

Take one step nearer towards your career today !

Preparing for Corporate Finance Mock Interviews: Common Questions and Answers

Posted on by Imarticus Learning

Interview prep isn’t fun for most people. Especially when it’s something as intense as corporate finance. You know what you’re up against; technical drills, number crunching, business acumen, and that awkward “Tell me about yourself.”

Most of the time, what throws people off isn’t the questions. It’s how they think they’re supposed to sound smart. And that’s the problem.

Interviewers want clarity. Confidence. A sense that the person across the table has done their homework and has real-world thinking behind their answers. A structured learning path can help. A financial analysis course is a smart way to build that structure. 

But if you’re looking for a quick and real-world guide for anyone trying to crack corporate finance interviews, you’re in the right place. It doesn’t matter whether it’s your first role or a shift from another team. This one’s got the basics, common questions, some tricky ones, and things people usually forget to say.

Common Technical Questions Asked in Corporate Finance Interviews

These are predictable, but don’t get too comfortable. Interviewers expect more than textbook definitions.

1. Walk me through a DCF.

Most finance interviews start here. Break it down simply:

  • Project free cash flows (usually for 5–10 years).
  • Discount those to present value using WACC.
  • Add terminal value, then sum both.

Pro tip: Keep it crisp. Don’t get lost in formulas unless they ask.

2. How do you value a company?

Use real business terms. Talk about:

  • Discounted Cash Flow (DCF)
  • Comparable Company Analysis
  • Precedent Transactions
  • Asset-based valuation (when it fits)

Pro tip: Explain which method suits what type of company. Show you understand the business, not just numbers.

3. What’s the difference between EV and Equity Value?

Straightforward but worth practicing:

  • EV = value of the whole business (debt + equity – cash).
  • Equity Value = just the shareholders’ part.

Pro tip: Use examples to make it stick.

4. How would a ₹10 increase in depreciation affect the financial statements?

Test your understanding of the three statements:

  • Income Statement: Net income drops.
  • Cash Flow: Add back depreciation.
  • Balance Sheet: Assets down, equity down.

5. How do you calculate WACC?

Go slow. WACC is the weighted average cost of capital:

  • Use after-tax cost of debt.
  • Add cost of equity via CAPM.

Pro tip: Mention risk-free rate, beta, and market risk premium.

Watch: Financial Analysis Course In Collaboration with KPMG in India

Corporate Finance Behavioural Questions

These are less about finance and more about how you think. Don’t script answers—just know the story.

6. Tell me about a time you had to work under pressure.

Stick to STAR: Situation, Task, Action, Result.

Pro tip: Mention deadlines, deliverables, team friction, anything real. Don’t over-polish it.

7. How do you prioritise tasks?

Make it sound practical, not preachy.

Something like, “I list my tasks, figure out which ones have dependencies or deadlines, and block time for deep work.”

8. What’s your biggest weakness?

Avoid cliches. Be honest, but show you’re working on it.

Example: “I used to overanalyse small details. I’ve learned to time-box reviews so it doesn’t slow me down.”

Technical vs Behavioural Interview Questions

Category Focus Sample Question
Technical Financial models, valuation, metrics How do you calculate WACC?
Behavioural Soft skills, time management, communication Tell me about a time you handled conflict at work.

Industry-specific Questions You Should Expect

9. If you’re interviewing for a bank

Banks like numbers that show strength. So, it’s smart to know:

  • Capital ratios like Tier 1 and Total Capital Ratio
  • Return on Equity (ROE)
  • Risk-weighted assets and how they’re calculated
  • The basics of Basel I, II, and III guidelines

These metrics give insight into how a bank manages capital and risk. Interviewers might ask you to explain why Basel norms matter, or how a bank’s capital adequacy ratio affects its lending capacity.

10. For a consulting firm

Here, you’re expected to zoom out and talk business logic. Focus on:

  • The big drivers behind M&A deals (market share, synergies, cost savings)
  • What valuation methods you’d use for different industries
  • Strategic frameworks (think Porter’s Five Forces, SWOT, etc.)

They want to see if you can think like a business partner, not just a number cruncher.

11. For a corporate finance role in a startup

Startups need sharp, lean thinkers. Be ready to talk:

  • Cash flow management: How long can they operate on current funds?
  • Burn rate: How fast are they spending?
  • Unit economics: What’s the cost vs return per customer?

Founders love when candidates understand runway, customer acquisition cost (CAC), and lifetime value (LTV). It shows you get their world.

Key Metrics in Corporate Finance

Metric Meaning Use Case
IRR Internal Rate of Return Investment decision-making
Payback Period Time to recover initial investment Startup cost analysis
Debt/Equity Capital structure ratio Risk and leverage assessment
EBITDA Margin Operating profitability Operational efficiency evaluation

Watch: Secure your Finance Job with Starting Salary of up to 5LPA in 3 Months!

Extra Tips Before The Corporate Finance Interview Day

Here are some extra tips to keep in mind before the interview day:

  • Dress smart. First impressions matter, but don’t stress over it. A clean, well-fitted outfit does the trick. No need to go overboard.
  • Don’t memorise your answers word for word. Understand the core concepts so you can adapt in real time if the question twists.
  • Re-read the job description the night before. Try connecting your answers back to what they’re looking for. It shows you’ve been thoughtful.
  • Stay calm. If something throws you off, take a breath. It’s better to pause for a second than rush into a bad answer.
  • Sleep well. No all-nighters. A fresh brain will outperform a tired one every single time.

Conclusion

Corporate finance interviews might not feel easier, but you do get better at handling them. With enough practice, you start thinking more clearly, answering with more confidence, and avoiding the usual scripted replies.

And if you’re building your foundation or brushing up after a break, structured learning really helps. That’s where Imarticus Learning fits in well. Their online programs are designed by finance professionals and focus on practical, job-ready skills. No unnecessary fluff.

FAQs

  1. How should someone prepare for corporate finance interviews?
    Start with key concepts like valuation, ratios, and cash flows. Then, practise common interview questions out loud.
  2. What’s the most asked question in  corporate finance interviews?
    Discounted cash flow (DCF) and WACC are usually asked. Be ready to explain them like you’re teaching someone else.
  3. Do finance interviews include case studies?
    Yes, especially for consulting or analyst roles. They might give you a scenario and ask how you’d evaluate a business or suggest next steps.
  4. How long should my answers be?
    Aim for 45 to 90 seconds. If they want more, they’ll ask. Too short sounds underprepared, too long loses attention.
  5. Should I memorise definitions and formulas?
    Not exactly. You should understand them so well you can explain them without trying to sound rehearsed.
  6. What tools should I know for finance roles?
    Excel is a must. Knowing how to use financial modelling templates or build one helps.
  7. What if I don’t know the answer to a technical question?
    Say you’re unsure, explain what you do know, and offer how you’d go about finding the answer.

A Guide to Corporate Finance and Its Role

Posted on by Imarticus Learning

Corporate finance offers certain intriguing and yet complicated attributes that run any business effectively. We shall define the term corporate finance and analyse its functions in the management of financial resources in a company from a practical aspect to a more relativistic one. Corporate finance is important, whether it is for a student, an extreme practitioner, or simply someone out there to understand how the process works.

What is Corporate Finance?

It is the art of management of money in economic units that bears the title of corporate finance. Corporate finance can cover all those financial decisions targeted towards the firm’s operations. This concerns the organisation or the capital layout, mobilising debts or assets for business operations purposes, and taking measures to increase the owners’ value.

The fundamental aim of corporate finance is to provide and protect the stakeholders’ value through developing an optimal financial strategy and making investment choices.

Corporate Finance Basics

Whether it is to get a job in a corporate structure or just from an interest standpoint, understanding the basic tenets of corporate finance is very important.

Corporate finance, in general, is made up of the following broad areas:

  • Capital Structure: Capital structure relates to the debt and equity balance employed by the firm to execute its strategies and grow. An ideal structure will, in turn, lower the weighted average cost of capital, thus increasing the profits. 
  • Working Capital Management: This means committing there cleaning a nits all possible current of broad understanding of current assets and current liabilities for purposes of running a firm and to pay off obligations of a short-term nature as they fall due. 
  • Financial Analysis: This means an evaluation of how well an organization has done with respect to its financial goals and expectations with the aim of determining the right course of action and strategy to adopt in the business.
  • Risk Management: Corporations’ strategies to prevent or minimise potential losses and, therefore, must identify the classification and evaluation of risk. This encompasses, but is not restricted to, risks associated with the market, credit and operations.

These fundamentals of corporate finance serve as a foundation for advanced comprehension of analytical tools employed in such practices.

The Role of Corporate Finance in Business

The scope of corporate finance must be simplified to more than just controlling finances; it is extensive and complicated. Here are some of the points that can be mentioned:

  • Decision Making: Corporate finance means to include the supplementary materials of data and analysis which are needed in aid of making strategic decisions. Hence, facts ground investments made, expansion is done and resources moved.
  • Financial Health Monitoring: It assists in the evaluation of a company’s financial health. This is achieved through periodic analysis of the corporation’s reports, where some patterns and issues in performance and potential areas for improvement are identified.
  • Value Creation: Maximising the shareholders’ value is the primary objective of corporate financing. It is ensuring that profits are the highest possible with the lowest costs and risks involved.
  • Strategic Planning: Corporate finance works by providing a financial perspective of how the strategy will work as well as the likely outcome of the strategy after a given time based on changing conditions.
  • Resource Allocation: Excellent corporate finance practice guarantees that available resources are well utilised, thereby increasing the efficiency and profitability of the operations in general.

The Corporate Finance Strategies

Strategic management of finance is crucial for the operational success of any company. Below are some of the widely used corporate finance strategies:

  • Growth Strategy: In this business expansion strategy, profits are usually appropriated back in the business. This is commonly achieved by companies by merging with or acquiring other companies or venturing into other regions.
  • Diversification: Various product lines or industries may be entered into thus good buffer is formed to the corporation from the dangers caused by depending on one uncompounded source of revenue.
  • Leverage: This refers to the capability of utilizing borrowed funds in such a way that the equity returns are elevated and optimized. With this comes an additional risk that has to be handled with caution.
  • Cost Control: The measures can be overhauling the structure of management to have more efficient operations, cutting the costs charged by suppliers and eliminating irrelevant expenditures.
  • Investment in Technology: Incorporation of modern approaches and technologies has the potential to lessen the operational costs and increase the flow of cash. This includes things such as financial management systems, data analysis and even robotics.

A full appreciation of these corporate finance strategies helps a business to effectively deal with adverse financial conditions and also exploit the available opportunities.

Financial Management in Corporations

It cannot be overstated that one of the main segments of corporate finance is financial management. It involves the strategic use of the required resources of an organisation to achieve its financial goals. There are identifiable facets of financial management:

  1. Budgeting: Creating and implementing Budgets makes sure that there is maximum utilization of resources. This would mitigate the challenge of over-funding as well as help in the strategic fit of the funds available towards the goals of the organization. 
  2. Management of Cash Flows: Any business calls for the realization of the importance of managing and sustaining inflowing and outflowing money from any business. An organisation needs to monitor closely all its customers, suppliers, and other sources of both cash inflow and outflow in the organization.
  3. Investment choices: Business investment decisions are a major component of corporate finance indeed. This includes the decision against opportunities which could involve investments and its related risks.
  4. Reporting of Financial Results: There is an increasing expectation for efficient and up-to-date financial reporting in order to enhance accountability. In addition, this approach assists the stakeholders in measuring the success of the business operation.
  5. Compliance and Risk Management: Financial restraint and risk mitigation measures should be put on place to avoid compromising business operations and shareholders welfare respectively.

The Importance of Education: IIM Lucknow Courses

For people who wish to explore the larger ambit of areas, such as corporate finance, adequately formal education definitely helps in enhancing the understanding and the skill set. This is because there are specialized iim lucknow courses offered by institutions like IIM Lucknow, which provides necessary knowledge and practical skills to the students. 

Below are the advantages of taking courses from IIM Lucknow:

  1. Access to Experienced Faculty: Many of the courses are taught by faculty members who are yet to bring a wealth of experience and insight that is relevant to the subjects taught.
  2. Opportunities for Networking: Attending a reputed institution such as this, allows one to interact with professionals and alumni in the course, thus providing chances of working in corporate finance.
  3. Learning by Doing: Most of the courses are practice-oriented and focus on the application of the learned concepts in real-life situations rather than just learning for examination purposes.
  4. Up-to-Date Programs: The program lasts for a short period and the program content is revised in line with external environmental dynamics affecting the financial services industry.
  5. Prospects Enhancing: Getting through a course at a well-known school like IIM Lucknow is very likely to improve your chances of getting a job in corporate finance and better still, help you earn more money.

The Future of Corporate Finance

Taking into account the above-mentioned factors, there are a number of factors that will shape corporate finance in the coming years as the financial landscape is becoming much more complex for business entities.

  • Digital Transformation: The control of the various portfolios on the finance operations is expected to be a prime focus as well. New technologies such as AI and blockchain are facilitating Efficiency, fairness, and security in transacting so that the whole process of transaction does not just rely on human beings.
  • Sustainability: As the concept of sustainable finance grew, so did the audience focus on the ‘S’ in ESG, particularly as more organisations are considering finance with respect to ESG in their decisions. This is due to the consumers’ and regulators’ expectations that these types of companies would actually contribute to society.
  • Globalisation: As the economic and geographical boundaries melt, more companies will begin to merge, thus making it very important for all to know more about global markets and foreign exchange risk. This is because such challenges will be unavoidable to the companies which will go global.
  • Data Analytics: Big data provides a new approach to the traditional ways of financial estimating and making decisions. With the assistance of data analytics, it becomes possible for such organizations to assess the state of the market and to apply the most efficient strategic approach towards it.

Conclusion

In conclusion, no one can underestimate the importance of corporate finance to the achievement of any corporation. From understanding the fundamentals of corporate finance to appreciating the need for corporate finance and implementing more corporate finance strategies enables businesses to navigate the stormy waters of finances quite easily.

Additionally, the quest for knowledge by undertaking courses such as those offered at IIM Lucknow is bound to improve one’s appreciation and skills in the subject under discussion. In view of the changing dynamics vis-a-vis the financial environment, always being in the know and being flexible will be paramount in making it in corporate finance.

Frequently Asked Questions (FAQs)

What is the primary focus of corporate finance?

The primary focus of corporate finance is on the long-term growth of the business and, in the process, the effective and efficient growth of the business equity as a result of proper financial management.

What are the main components of corporate finance? 

The main components comprise capital budgeting, capital structure, working capital management, financial analysis, risk management, etc.

Scope of Corporate Finance- Know all about it!

Posted on by Imarticus Learning

What are Corporate Finance Roles?

Posted on by Imarticus Learning

What are Corporate Finance Roles?

The banking and financial services industries are the two major pillars of the modern capitalist society that helps to propel the wheel of the economy smoothly. A job in the corporate banking or financial services segment is considered among the most prestigious and sought-after career choices.

This has naturally increased the competition for corporate finance job roles and obtaining a suitable role requires a comprehensive understanding of the corporate finance division. One of the best ways to find your dream corporate finance role is by opting for a corporate finance course.

Let’s delve deeper into some of the most prominent corporate financial roles and what they entail.

Chief Financial Officer (CFO)

The Chief Financial Officer heads the corporate finance division for most organizations and reports directly to the Chief Executive Officer of the company. A CFO is responsible for overseeing all the finance-related departments of an organization and is entrusted with finding new investment avenues for a business that will maximize returns and minimize losses.

A CFO is responsible for all the financial operations of a business. From budgeting to planning capital expenditure and fund sourcing for projects, a lot is riding on the shoulders of a CFO.

Financial Analyst

The financial planning and analysis segment of a corporate finance division has a broad range of responsibilities. The role of a financial analyst is one of the most reputed ones in the corporate finance division. Financial analysts play a key role in maintaining financial prudence for an organization.

The primary task of financial analysts in corporate finance roles is related to capital budgeting and entails estimation of revenue, budgeting, and monitoring any deviations from the set predictions.

Financial analysts are also responsible for evaluating capital proposals and investing in projects based on their future income and profitability. The financial analyst course helps businesses to find out exiting financial loopholes and the most profitable investment opportunities to maximize returns.

Credit Manager

Credit managers play a crucial role when it comes to reducing the probability of loss for businesses. Credit managers are primarily responsible for overseeing the credit decision making of the firm. They have to decide the credit rates for different parties and also have to establish the terms and conditions of the credit contracts.

Some of the common responsibilities of a credit manager include deciding how the amount of credit to be provided to suppliers, terms and conditions of the credit transactions, managing receivables collection, etc.

A credit manager should be well-versed with the intricacies of financial statements and should have a proper understanding of the customer profile. Opting for a corporate finance course by reputed institutions like Imarticus learning will help you a great deal with your job prospects.

Investor Relations Officer

A business cannot function in isolation, there are many important stakeholders of a business and investors top that list. Managing relationship with the investors plays a crucial role in the financial success of a business. The investor relations officer is responsible for maintaining a good relationship with a business’s investors including individual and institutional both.

The day to day for an investor relations officer involves communicating with the top-level executives, reverting to investor queries, forwarding important financial data about a company for the investing public.

Treasurer

The role of a Treasurer is indispensable for any organisation that is looking to optimise its finances. Treasure management involves a wide range of responsibilities as it provides a holistic view of the functioning and performance of all other departments.

A treasurer is responsible for supervising the treasury department which encompasses a wide range of activities like cash-flow management, risk management, financing, pension management, etc. The size of a treasury team might vary depending upon the nature and scale of operations of an organisation. A treasurer is generally the key contact person for investment banks and investors who are interested in a given business.

These were some of the most prominent corporate financial roles in the contemporary. One can opt for a corporate finance course by reputed institutions like Imarticus Learning to obtain a comprehensive understanding of this division and obtain relevant knowledge and skills to get their dream job.

Also Read: Importance & Scope of Corporate Finance

A Beginners’ Guide Investing in The Stock Market

Posted on by Imarticus Learning

There is no better way to learn than by doing. So we at Imarticus Learning believe that the best way to prepare for an interview for Corporate Finance jobs is to actively invest in the market in whichever way possible thereby putting some ‘skin in the game’, which ensures you know what’s going on. While FMVC and our Diploma in Corporate finance focus on Interview Prep using mock interviews and providing sample questions, we always encourage our students to actively participate in the stock market by opening Phantom Accounts.
Before you begin actively investing, you need to answer a few questions :

1. What are you doing this for? If you are doing it for the course, we advise you to open a phantom account, which essentially means you do everything but invest real money. Regardless of if you open a phantom account or the real thing, the following steps will help.
2. What kind of investor are you? Are you a risk taker, risk-averse, or a little bit of both? This is what we call investor profiling and we delve into this a great deal in our Retail Banking and Wealth Management Diploma, one of India’s leading programs/courses in Retail Banking and Wealth Management. Being a risk taker is simple. It requires a strong stomach and a healthy attitude to losing some money because the equity market is volatile. While you will be making decisions based on sound analysis, sometimes things go wrong and you could lose all your capital, hard earned money you have been saving for a long time. How do you feel about that? If you shudder at the thought and think you will lose a lot of sleep then you are probably risk averse. Once you realize this, you can then invest your portfolio keeping that in mind and put aside a small amount for risky ventures that offer spectacular returns and perhaps put the rest in conservative investments with lower returns.
3. How much time do you have? Picking stocks is hard work and there’s a reason why Mutual fund managers get paid so much to do it. So if you don’t have the time, we suggest starting out with an index fund like Franklin India Index or HDFC Index Fund – Sensex. An index fund is a mutual fund that invests in a predefined stocks of an index in a percentage allocation that resembles the index. Your portfolio could be a mix of different index funds, NSE Small caps, BSE Sensex and maybe even an international index fund.
4. I want to invest individually. We suggest creating your own index fund and take control of the percentage allocation thereby doing some work of your own while having the Sensex as a guide. If you plan to move away from the index, then create a portfolio of 12-20 well-chosen stocks that are extremely well covered and have excellent investor relations.
Here are some broad rules
a. Don’t put all your eggs in one basket or one sector
b. Understand the concept of defensive stocks and cyclicality
c. Don’t completely trust your broker but aim to create a good relationship
d. If you plan to invest using an online platform- the preferred method, then remember to read, research and plan meticulously and keep a record and mark to market regularly
Our next blog post will focus on the technicalities of opening your first account as well understanding various stock market terminology.

 

The role of Industry Analysis in Corporate Finance

Posted on by Imarticus Learning

What surprises our IFAP and students the most during the program is not how difficult and subjective Valuation and interpreting Financial Statements can be but how quant work is not the be all and end all of Financial Analysis. In fact, once they learn the logic behind the CAPM and it’s elements, the calculation of the WACC and the formula for the free cashflow, all of which are easy once you understand the steps and the theory, what flummoxes is forecasting basic numbers like sales, working capital and capital expenditure. They realize it’s not just a case of dragging cells and using historical growth rates but understanding the company’s future in context of the industry it operates in. The best analysts are industry experts, which is why Investment Banks work in Industry teams because, like man, no company is an island.
This blog post is a part of a longer series where we try and understand the importance of Industry Analysis, its role in financial services and of course, try and develop quick frameworks that help you ask the right questions. Let’s start with its role, which goes right back to strategy and the principals of why companies exist.
There are two principles to running any firm:

  • Increase Top line or Sales or Revenue year after year and in a sustainable manner.
  • Increase the bottom-line, margin, profit, income year after in a sustainable manner

The word ‘sustainable’ is critical because a company is an entity that lives to perpetuity. So to create wealth and fundamental value, growth and profitability have to be recurring forever. That’s what creates great companies like Saint Gobain (founded in 1665) Citigroup (1812), Harpers Collins (1817) Bowne  (RR Donelly 1775) and Kikkoman (the Japanese food company that can trace its heritage back to 1630). No PE firm wants to invest in a one hit wonder because selling it again would require them to prove sustainable returns over a lifetime.
For firms to achieve their two principles they begin with a vision and a mission statement followed by an execution plan which we broadly call Corporate Strategy, quite simply, a plan of attack. Why attack? Well because most of what we know about strategy comes from war strategy and the wisdom of the Romans, the Greeks and the Mauryas and the political treatise like Arthashastra by Chanakya, The Prince by Machiavelli and The Art of War (the one most adapted to business and investing) written by Sun Tzu.

FACT: Japan is home to the world’s oldest lots of things. Sudo Honke, the world’s oldest sake brewer, has been around since 1141. Before being absorbed into a subsidiary in 2006, the oldest continuously operating family business in the world was Kongo Gumi, which built temples, and had been doing so for 14 centuries.

The origin of Strategy
Military War strategy focused on two things, how to acquire power, stay in power once you get it and how to expand your reach, creating more wealth for your treasury and, unfortunately, yourself. They rarely did it for their people. Nothing much has changed. Strategy wouldn’t have been needed of course if there were only ONE people and ONE king who ruled the earth completely, leaving no land to conqueror or no usurper to vie for the throne. We would call this a Monopoly. A state of play where there is no competition for customers or demand making me the sole provider, which enables me to charge anything, I want. Anyone or anything come to mind? OPEC has been doing it for years. Controlling supply and price because our demand for oil can never be satiated, that was until Russia and the US entered the picture and we suddenly went from a Monopoly to an Oligopoly where there were other players.
What about De Beers, the South African diamond miner? For years they controlled who they made sightseers, a selected group of people who would be given a velvet bag in exchange for money, a bag they could not open. The aspects (four C’s) of the stones were unknown to the buyer, and they had to live with them for over 100 years until Alrosa broke open the market in 1992 and became the largest miner in the world.
When you stop being the only one, you have only two ways to grow. You either conquer unchartered territory or you take someone else’s. The unchartered territory is of course the easiest and most cost-effective. You lose fewer people, spend less on feeding and housing armies and don’t lose sleep over being knifed by the resistance. But alas, much like the world has run out of unchartered territory, product demand is not infinite. This means I am going to have to step on your toes, and perhaps take what is yours. To do that successfully I need to master three things.

  • Have a single simple long term goal
  • Have a comprehensive understanding of my environment
  • Have a critical and honest appreciation of the strength of my resources.

In the next series, we will look at the above in more detail. This is a small taste of what you will learn in IFAP, the industry’s leading Financial Analyst program. Learn more about the program here.