Why I love learning my favourite subject - Corporate Finance

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Why I love learning my favourite subject – Corporate Finance

16 Oct 2022
- admin
- Student Careers
Thanks to Dr. Neetika Batra, our corporate finance faculty at SOIL for explaining the core concepts of the subject in such an interesting way with real-life examples. Experienced with a demonstrated history of working in the higher education industry, Dr. Batra is skilled in Business Planning, Teaching, Research, Banking, and Team Leadership. We got to learn a lot from her strong professional spirit, her knowledge and her keen sense of the practicalities of the business world.

Corporate finance is not just useful for understanding the finance of a business but also adds tremendous value to personal finance which makes concepts most interesting for me. The course covers various concepts like Inflation, time value of money, debt, equity, IPO, discounted cash flow model, present value, future value, etc, which I love learning about. Let’s dive into these topics by relating them to real-life examples, just like we learn in the classroom.

Have you ever wondered why ten years back we used to get a cup of tea at Rs. 5 but now it’s no less than Rs. 10. We all know that that’s because of inflation. However, did you know that in India, the ideal inflation rate is around 4% which means the average price of a product increases by 4% every year. Then you might get some questions like, is inflation good or bad? Why don’t the prices remain constant throughout? Ideally, nominal or steady inflation aids growth in the economy, so your salary also increases every year to keep up with the inflation. Without inflation, the economy may get into deflation, which leads to a decrease in pricing means less production & reduced wages, which in turn cause prices to fall further causing a further decrease in wages, and so on. So, a low rate of inflation will provide a safety barrier against this.

Do you know that the value of Rs. 1000 in 1972 is just Rs. 135 in 2022? Here comes the next topic, the time value of money. As time increases, the value of money decreases because of inflation, so it’s important to grow your savings above the inflation rate else inflation would eat up your savings.

Now let’s dive into business concept of Corporate Finance. Corporate finance refers to the processes and dealings involved in raising money to start, grow, or buy a company. It is directly connected to business decisions that affect finances or money. It might be seen as a bridge connecting the organisation and the capital market. The concepts related to the funding of business (Cost of capital) and analysing the viability of business through discounted cash flow model gives an idea of whether the business is worth embarking on or not.

The term “discounted cash flow” (DCF) refers to a method of valuation that calculates an investment’s value based on its anticipated future cash flows. Using estimates of how much money an investment will make in the future, DCF analysis seeks to evaluate the value of an investment today. Discounted cash flow model means predicting the future cashflows and discounting them back to the present value. The net present value should be greater than 0 for a business to be feasible.

These concepts help one to invest in the stock market. For example, when you really understand a business, you will be able to predict the future cash flows of the business; once you predict the future cashflows, discount it back to the present value; based on the value, you will be able to figure out whether the business is overvalued or undervalued and you can take your investment decision accordingly. At the end of the course, Corporate Finance has set a strong base to pursue my minor in Finance.

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