Corporate Finance Concepts

Why Shareholder Wealth Maximization is Important in Business?

In modern finance, it is proven that shareholder wealth maximization is the superior goal of a firm and shareholders are the residual claimants; therefore maximizing shareholder returns usually implies that firms must also satisfy stakeholders such as customers, employees, suppliers, local communities, and the environment first. Also, a firm’s value can not be maximized if the management board or shareholders ignores the interest of its stakeholders. Thus, the main goal of a firm is to maximize shareholder wealth but it does not mean that management should disregard stakeholders.

To begin with, it is necessary to understand what is shareholder wealth and why maximizing shareholder wealth is a superior objective?… Read the rest

Abey Francis

Factors Influencing Dividend Payouts of a Company

Dividend  is a form of payment made to shareholders by an organization; It’s a profit which is paid out to the company shareholders. When a profit is earned by the company, the profits are used again to invest for a better growth of the company for its future, or it can also be paid to the company shareholders in the form of dividends. Dividends are also paid to the shareholders in the form of cash or shares. The company must have sufficient funds in order to pay dividends to its shareholders. Dividends are generally paid out by a company only when the company make good profit and it’s been paid form its earnings.… Read the rest

Abey Francis

Advantages and Disadvantages of Ratio Analysis

Ratios are an expression of one number in terms of another. This form of analysis facilitates comparison between the financial performances of different businesses or industries. Ratio, vertical and horizontal analysis are commonly used by financial analysts because they are useful tools for planning, controlling and monitoring an organisational performance. A range of financial ratios are there, including: liquidity, solvency, profitability, efficiency and investor ratios.

Advantages of ratio analysis include:

  • Ratio analysis enables the users of the financial statement to make comparisons between the financial performances of two or more businesses, even if they are of different sizes or from different industries, by converting financial numbers into standardized form using pre-defined formulas.
… Read the rest
Abey Francis

Corporate Finance – Concept and Meaning

Business firms and government organizations do need to implement various programs to achieve their goals. Implementing programs require resources such as natural resources, human resources and financial resources. Effectiveness in the management of financial resources is key to optimize the use of natural and human resources. In the case of individual, management of financial resources or funds is known as personal finance. The same is called by public finance in government organizations. Corporate finance is used to refer to the management of funds in the context of business firm. Thus, finance as a discipline is classified into three domains: public finance, business finance and personal finance.… Read the rest

Abey Francis