Category: Corporate Finance

Overview of Terms on Accounting Based on Corporate Finance Glossary

Balance Sheet

A balance sheet shows the financial standing of a company, it can be used as a summary of assets and liabilities and shows the balance of income and expenditure over a given period of time. A simple way to present a balance sheet is by using the equation: Assets = Liabilities + Equity. To present an effective balance sheet, under assets and liabilities, respectively divide into two sections, current, and non-current (long term). An example of some current/liquid accounts would be Inventory, Cash, or Trades Payable. An example of non-current/illiquid accounts would be Plant, Property, Equipment, and Long-Term Debt. (Corporate Finance Institute, 2018)

Break-Even

Break-Even is the point at which a business’s profits are equal to their expenditures. In other words, the business is not losing money, however, they are not making money at the same time. This occurs mostly when a company is first starting out and is a place where they can sit comfortably for a time, but they may find it difficult to innovate and ‘move forwards’ as they do not have the extra profit to do so. This is why it is best for a company to find a way to innovate without using too much money and thereby tipping the balance so that they can move forward and start making a profit again.

Budgeting

Budgeting is the planning of a company’s expenditures, in detail, to ensure sufficient cash flow. Business Budgets can include short-range and long-range plans to be most effective, as this can be a good way to keep track of cash flow but to predict it as well. Budgets are mostly made up of variable and fixed costs, these can be laid out in different sections as fixed costs cannot be reshaped but variable costs can. Budgets allow companies to look at their expenditures and compare against money coming in to see where they made need to make some changes to their variable costs to ensure more profit. (Entrepreneur, 2020)

CAGR

CAGR is an acronym for Compound Annual Growth Rate and it refers to the measurement of an investment’s growth over time. It is mostly used to measure and compare performance, but can also be used to predict future growth. The CAGR formula is: CAGR = CAGR is best for showing if an investment is worth making and can identify any trends worth keeping an eye on. It allows companies to ‘stay ahead of the game’ when taking potential risks. (Corporate Finance Institute, 2020)

Capacity Management

Capacity Management is a theory that consists of the planning, IT monitoring, and administration that goes into ensuring the information technology recourses have the capability to, across a service lifecycle, handle the necessary data processing. There are three main types: product capacity planning, workforce capacity planning, and tool capacity planning. (OmniSci, 2020)

Capital Expenditure

Capital Expenditures are funds used by companies to purchase, improve or maintain long-term assets. These long-term assets are usually things such as land, buildings, and equipment, which are all physical, fixed, and non-consumable. To ensure the most effective use of capital expenditure a company must have a structured plan of deadlines, prices, and resources. A company needs to be able to think long-term and to be able to capture accurate data to be able to make realistic predictions on a budget. (Corporate Finance Institute, 2018)

Competitor Analysis

Competitor Analysis is used in the understanding of a company’s competitors within the industry and their strategies and aims and therefore enabling the company to ‘stay ahead of the competition. A company needs to identify their competition and then analyze them, their business background, facilities, and locations, products, pricing, marketing, sales, etc. Then identify which of these competitors are primary (direct) or secondary (similar) competition, determine any business opportunities. (Square Up, 2019)

Costing

Costing is a way of assigning costs to an area of the business; this may usually involve variable costs (e.g. sales or number of employees) and fixed costs (e.g. rent or insurance). The main two purposes of costing are to be able to improve profit by refining operations and to be able to show detailed data of inventory on a balance sheet at the end of a time period. (Accounting Tools, 2019)

Decision Making

Decision Making is the process by which a company processes and decides on something important. It can be seen as an ongoing process that keeps the company growing and seeking new goals. A decision for a company cannot be made instantly, it must go through a process of defining a problem, collecting data about said problem, looking into different options, choosing the best possible option to solve the problem, and then making a plan and executing said plan. It is also important to follow up on a new decision to ensure that everything is going as intended and no more problems are arising. (Management Study Guide, 2015)

Fixed Costs

Fixed costs are a ‘locked’ value and tend not to change over time, but may change when a business starts to expand. As variable costs are based on volume or operations, fixed costs are less controllable than variable costs. Some examples of fixed costs for a company could be insurance, rent of a building, taxes, etc. (My Accounting Course, 2020)

Inventory Control

Inventory Control in when a company aims to make the most profit off of little inventory investment, therefore, aims to maximize the company’s use of inventory. The most common areas for inventory control are: raw materials availability, finished goods availability, work in process, reorder point, bottleneck enchantment, and outsourcing. (Accounting Tools, 2019)

Operating Costs

Operating Costs refer to the maintenance and administration of a business on a day-to-day basis, this includes product sales, but also rent, employee wages, raw materials, and general maintenance expenses. Operating costs are shown on a company’s income statement and therefore can be easily found and analyzed. (Investopedia, 2020)

Macro Environment

A Macro Environment are external conditions that have an impact on the development of a business, these conditions can be uncontrollable and impact the overall performance of a business. An example of conditions that may impact the business are economic growth, inflation, social conditions, interest rates, government policies, technological developments, climate changes, etc. as these can all affect the environment around the business not just their immediate marketing environment. (My Accounting Course, 2020)

Micro Environment

The Micro Environment are the elements that are in a company’s immediate environment e.g. suppliers, competitors, the media, customers. This immediate environment can have an impact on the company’s performance and decision-making. (Monash Business School, 2018)

PEST

PEST is an acronym for Political, Economic, Social, Technological. The PEST Analysis is used to assess the external factors that could impact the competitive marketing of a company and their products. It is most effective on larger companies that may feel the impact of the macro-environment more, therefore finding the best way to deal with the impacts of events. (Investopedia, 2020)

Profit and Loss Statement

A Profit and Loss Statement, also known as an Income Statement, is a summary of revenues, expenses, and profits and losses over a period of time. It is different from a cash flow because it is based on accounting principles. The Statement best shows the company’s ability to generate sales, manage expenses, and create a profit. An example of categories that are good to include on a statement are revenue, cost of goods sold, selling, general and administrative expenses, marketing and advertising, technology/research and development, interest expense, taxes, and net income. (Corporate Finance Institute, 2018)

Resources

A Resource is a stock or supply of money, materials, staff, and other assets that can be used effectively by a company for a specific function to generate a profit or outcome.

Revenue Management

Revenue Management is a way in which to predict customer behaviour by analyzing the micro-market and optimising product availability and price. The main aim is to ‘sell the right product to the right customer at the right time and for the right price. (Wikipedia, 2020)

ROI

ROI is an acronym for Return on Investment, which refers to the money invested in a business and the return based on the net profit of the business. This isn’t necessarily the same as profit, which measures the performance of the business. The best way to determine ROI is to divide the net profit by the total number of assets, however, there are several other ways in which to do this. (Entrepreneur, 2020)

ROO

ROO is an acronym for Return on Objective, which refers to a business’s ability to define and achieve measurable goals and objectives. Types of objectives can include global-level strategic objectives, individual section objectives, meeting, presentations, and activities objectives, and objectives for each segment of a given population. (Roberts Event Group, 2016)

Supply Chain

A Supply Chain is a detailed plan which lays out the system of producing and delivering a product or service, this includes anything involved at each stage, information needing to be communicated, natural resources being transformed into useful materials, human resources, and other components to achieve the finished product or service. Two examples of a supply chain could be a general supply chain and a supply chain for an e-commerce company which sells a variety of products and orders are processed by technology. A general supply chain would consist of raw materials to supplier to manufacturer to distributer to retailer and then to the consumer. Whereas an e-commerce supply would be e-commerce to product orders to warehouse to shipping to the customer. (Corporate Finance Institute, 2020)

SWOT

SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. A SWOT Analysis focuses on internal and external factors that could affect the business, which also evaluates the company’s competitive position within the industry and develop a strategic plan. The analysis works best when a wide range of realistic feedback and data is given so that it can be used as a guide for the company rather than a set list of rules. (Investopedia, 2020)

Variable Costs

Variable Costs are costs that can always be changing, they are based on production and therefore how much or how little is being produced by a company. Variable costs can be lowered and changed when a company needs to make more profit or when costs aren’t necessary and can be scrapped. For example, a company when catering for an event for 200 people and a meal per person is £35, the variable cost would be £7,000. However, if there is a better venue that cannot hold 200 and is more expensive to rent, then the variable cost can be adapted and come down to cater for 100 people which would then be £3,500 and there would be more money to be able to spend on the better-preferred venue. (My Accounting Course, 2020)

References

1. Corporate Finance Institute (2018) Balance Sheet. Corporate Finance Institute [online]. Available from: https://corporatefinanceinstitute.com/resources/knowledge/accounting/balance-sheet/ [Accessed 13/11/2020].
2. Entrepreneur (2020) Budgeting. Entrepreneur [online]. Available from: https://www.entrepreneur.com/encyclopedia/budgeting [Accessed 13/11/2020].
3. Corporate Finance Institute (2020) What is CAGR. Corporate Finance Institute [online]. Available from: https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-cagr/ [Accessed 13/11/2020].
4. OmniSci (2020) Capacity Management. OmniSci [online]. Available from: https://www.omnisci.com/technical-glossary/capacity-management [Accessed 13/11/2020].
5. Corporate Finance Institute (2018) Capital Expenditures. Corporate Finance Institute [online]. Available from: https://corporatefinanceinstitute.com/resources/knowledge/accounting/capital-expenditures/ [Accessed 13/11/2020].
6. Square Up (2019) Competitor Analysis: A Definition and Guide. Square [online]. Available from: https://squareup.com/gb/en/townsquare/competitor-analysis-a-definition-and-guide [Accessed 13/11/2020].
7. Accounting Tools (2019) Costing Definition. Accounting Tools [online]. Available from: https://www.accountingtools.com/articles/what-is-costing.html [Accessed 13/11/2020].
8. Management Study Guide (2015) What is Decision Making. Management Study Guide [online]. Available from: https://www.managementstudyguide.com/what-is-decision-making.htm [Accessed 13/11/2020].
9. My Accounting Course (2020) What is a Fixed Cost. My Accounting Course [online]. Available from: https://www.myaccountingcourse.com/accounting-dictionary/fixed-cost [Accessed 13/11/2020].
10. Accounting Tools (2019) Inventory Control. Accounting Tools [online]. Available from: https://www.accountingtools.com/articles/what-is-inventory-control.html [Accessed 13/11/2020].
11. Investopedia (2020) Operating Cost. Investopedia [online]. Available from: https://www.investopedia.com/terms/o/operating-cost.asp [Accessed 13/11/2020].
12. My Accounting Course (2020) What is a Macro Environment. My Accounting Course [online]. Available from: https://www.myaccountingcourse.com/accounting-dictionary/macro-environment [Accessed 13/11/2020].
13. Monash Business School (2018) Micro Environment. Monash Business School [online]. Available from: https://www.monash.edu/business/marketing/marketing-dictionary/m/micro-environment#:~:text=the%20factors%20or%20elements%20in,marketing%20intermediaries%2C%20customers%20and%20publics [Accessed 13/11/2020].
14. Investopedia (2020) PEST Analysis. Investopedia [online]. Available from: https://www.investopedia.com/terms/p/pest-analysis.asp [Accessed 13/11/2020].
15. Corporate Finance Institute (2018) Profit and Loss Statement (P&L). Corporate Finance Institute [online]. Available from: https://corporatefinanceinstitute.com/resources/knowledge/accounting/profit-and-loss-statement-pl/ [Accessed 13/11/2020].
16. Wikipedia (2020) Revenue Management. Wikipedia [online]. Available from: https://en.wikipedia.org/wiki/Revenue_management [Accessed 13/11/2020].
17. Entrepreneur (2020) Return on Investment ROI. Entrepreneur [online]. Available from: https://www.entrepreneur.com/encyclopedia/return-on-investment-roi [Accessed 13/11/2020].
18. Roberts Event Group (2016) ROI, ROO, ROE – What do These Terms Really Mean. Roberts Event Group [online]. Available from: https://www.robertseventgroup.com/roi-roo-roe-what-do-these-terms-really-mean/#:~:text=Return%20on%20Objective%20focuses%20on%20defining%20and%20achieving%20specific%20measurable%20objectives.&text=%E2%80%9CMeeting%20participants%20will%20have%20gained,set%20for%20the%20meeting%20overall [Accessed 13/11/2020].
19. Corporate Finance Institute (2020) Supply Chain. Corporate Finance Institute [online]. Available from: https://corporatefinanceinstitute.com/resources/knowledge/strategy/supply-chain/ [Accessed 13/11/2020].
20. Investopedia (2020) Strength, Weakness, Opportunity, and Threat (SWOT) Analysis. Investopedia [online]. Available from: https://www.investopedia.com/terms/s/swot.asp [Accessed 13/11/2020].
21. My Accounting Course (2020) What are Variable Costs. My Accounting Course [online]. Available from: https://www.myaccountingcourse.com/accounting-dictionary/variable-costs [Accessed 13/11/2020].

Essay on Corporate Finance: Analysis of Five Major Financial Companies

Introduction/Overview

Finance is a field that dominates various aspects of society and plays a crucial role in the business process. The term finance is very broad and covers a vast amount of activities that support the business process every day. Generally speaking, Finance can be defined as activities that revolve around the management of money and acquiring funds, such as investing, lending, and borrowing. The college of business at the Pennsylvania State University defines finance as “how individuals and business organizations raise money and capital, and how those resources are allocated among competing investment and consumption opportunities” (“Finance,” n.d.). There are two types of finance that drive and support the business process in different ways: personal and corporate.

Personal finance is concerned with the individual and how they manage their money. This category of finance “is the process of planning and managing personal financial activities such as income generation, spending, saving, investing, and protection” (“What is Personal,” n.d.). Clearly, this form of finance is purely focused on the end consumer and how they utilize their money. This field helps people diversify their wealth and allows them to spend money wisely. Personal finance supports the business process through guiding people where to invest their money in the stock market, helping people budget their money, and creating financially secure futures for clients. Ultimately, it supports the business process by enabling the end user to have enough money and resources to buy products and services from businesses. Furthermore, consumers are investing in the economy and are funding businesses through personal financial services. Essentially, personal finance ensures that consumers are actively engaged in the business process within society.

Corporate finance is the category of finance that dominates the world and essentially drives the business process itself. Simply put, businesses and the business process are not possible without corporate finance. Corporate finance can be viewed as the foundation of the business process and focuses on “the capital structure of a corporation including its funding and the actions management take to increase the value of the company” (What is Corporate,” n.d.). This field of finance is comprised of capital financing, structuring, budgeting, and investing. The collective goal of these activities is to maximize the value of a company while reducing risk and to implement a plan to remain profitable.

In short, corporate finance is how businesses effectively receive funding and utilize their capital assets to increase the worth of their business. For example, large corporations acquire funding through selling stocks or debt securities and use this money to invest in the corporation. Finance professionals then use financial modeling and various analysis techniques to allocate the company’s capital assets. They identify future expenditures, estimate the cash flows, and determine which projects to proceed with. This is known as capital budgeting and it is the primary aspect of corporate finance. Furthermore, corporate finance includes the role of balancing equity and debts in order to optimize the capital structure of a company. Clearly, corporate finance supports the business process in an abundance of ways. It enables businesses to have enough funding through borrowing from banks and helps them wisely use their assets to remain profitable. This field helps businesses run feasibly through precise budgeting and the structuring of a company’s capital assets. Arguably, everything that happens within a business is possible due to the financial strategies that are implemented by a company.

• Evolution of field:

In order to understand finance in its entirety, is vital for one to understand the evolution of the field over the last 20 years. In the ….

Five Major Financial Companies (Divided amongst group members):

S&P Global provides financial information and analytics of various companies and commodities to consumers across the world. They provide specific date, price assessments, and market insights with propriety analysis. The company claims that they “provide intelligence that is essential for companies, governments, and individuals to make decisions with conviction”. S&P Global started as a publication which kept citizens up to date with the latest railway industry news and commentaries in 1888. In the forthcoming years, the company formerly known as McGraw-Hill grew and acquired other publications and financial information services such as American Machinist, Standard & Poors, Capital IQ, CRISIL, and SNL Financial. McGraw-Hill Financial launched a joint venture in 2012 to create the S&P Dow Jones Indices. One of the most essential indices in the marketplace was created, delivering data relied on by millions of investors around the globe. In 2016 McGraw-Hill Financial changed their company title to S&P Global. To this day, over four million companies are covered by their research and data, with over one million credit ratings on entities and securities across a wide range of sectors. On average over 10,000 daily energy and commodity price assessments are produced, and they cover 99% of the global market. S&P Global have proved themselves to be one of the top financial analysis companies by consistently providing sound strategic insights to consumers, and dominating the market at that.

Capital One Financial Corporation is a bank holding company specializing in diverse financial products and services, with its headquarters in McLean, Virginia. It was founded by Richard Fairbank and Nigel Morris in 1994 and has become one of the largest banks in the United States. Its key executives include Mr. Richard D. Fairbank (Founder, Chairman, Chief Executive Officer, and President), Mr. Richard Scott Blackley (Chief Financial Officer), Mr. Sanjiv Yajnik (President of Financial Services), and Mr. Frank G. LaPrade III, J.D. (Chief Enterprise Services Officer and Chief of Staff to the Chief Executive Officer). Its major competitors include American Express, JP Morgan Chase, Bank of America, and Citigroup. Its total revenue reached to $28,076,000,000 at the end of the year of 2018. Capital One Financial Corporation has three operating segments: Credit Card, Consumer Banking, and Commercial Banking. The company provides clients with credit and debit card products and online banking services through online and mobile banking devices, ATMs, and branches across the country. It also includes various types of credit and debit cards to meet the needs of consumers, small businesses, commercial clients and other communities. For Consumer Banking and Commercial Banking segments, the company offers banking services, auto loans, commercial and industrial loans, and commercial real estate loans.

The Bank of New York Mellon is a financial institution that has remained dominant for the past 230 years. The global investment company has been operating under its current name since the merger between the Bank of New York and Mellon Financial Corporation in 2007.

Five Financial Positions (Divided amongst group members):

Security and commodity traders, also known as brokers, buy and sell securities and commodities to transfer debt, capital, or risk. They establish and negotiate unit prices and terms of sale. The median wage that brokers make is $64,120 annually. It is a satisfying job for people who are interested in having a level of independence to work on their own and make decisions, and it offers security and good working conditions. The various tasks of brokers involve monitoring markets or positions, making bids or offers to buy and sell securities, and buying and selling stocks, bonds, commodity futures, and foreign currencies. The skills required for the job are listed as critical thinking, active listening, speaking, judgment, and decision making. Employees should be able to use inductive and deductive reasoning, which is the ability to use a set of rules or to combine several pieces of information to solve problems. The job wouldn’t necessarily be recommended to someone who prefers to be up and moving, as employees reported that a majority of their time on the job was spent sitting continually, connecting to people through electronic mail, telephone, and face-to-face discussions. Although not for everybody, brokers make a good living while performing duties that keep satisfaction levels high and provide a feeling of accomplishment.

More and more people within the finance field are considering becoming financial analysts because of its high earning potential and other career opportunities that this career path could lead to. However, the financial services industry is very competitive and has challenging barrier to entry. Financial analysts are people who examine financial data and market trends and come up with reports that would help companies make investment decisions or predict future outcomes. Based on their findings, analysts would also provide companies with their recommendations on course of actions. Preferably, financial analysts are individuals who obtain degrees in economics, finance, accounting or statistics, individuals who have a strong quantitative mind and a desire to solve problems, or individuals who are comfortable with analyzing data and coming up with solutions based on the analysis. One of the major responsibilities of being a financial analyst is to predict future outcomes of a business decision by analyzing past transactions and composing financial models. Being an analyst could be challenging because of its data-driven nature. One might need to overcome the stress and difficulties when facing complex data and ambiguous variables. There are three major types of analyst positions. Individuals could choose to work for buy-side firms, sell-side firms, and investment banks. Financial analysts who work for buy-side firms help their employers make investment decisions, and those who work for sell-side firms interpret qualities of securities in an industry. Analysts in investment banks examine corporate fundamentals and determine whether a business deal is feasible or not. For an entry-level financial analyst, the median annual income is $55,265. Senior analysts’ annual salaries could go up to $150,000.

Chief Financial Officer (CFO) is a position that can be viewed as the epitome of success within the financial field. This senior executive position comes with the task of overseeing the entirety of a corporation’s financial performance. They are entirely in charge of the accounting and financial departments within a company. In particular, they are in charge of the financial reporting, liquidity, and financial planning of a company. Chief Financial officers oversee the reporting of a company’s finances and must ensure that these financial reports are accurate for shareholders and legal purposes. It is essential for CFO’s to be on top of reports due to the implications and legal consequences a company can encounter from faulty or false reporting. In addition, Chief Financial Officers have tremendous input in the decisions that surround investments and how the company spends its money. Through assembling teams of top managers and colleagues, CFOs decide how to balance cash flows and debts, and where to allocate capital within a company. They ultimately create the financial plan of a company and shape the capital structure of it as well. CFOs forecast and analyze future expenditures to ensure long-run success of a firm. Essentially, they dictate where and how the money of a company is going to be spent while making sure the company is sufficiently funded (“What Does,” n.d.). In order to become a Chief Financial Officer, one must have a bachelor’s degree, great leadership skills, and at least 5-15 years of experience within the field of finance. In addition, CFO’s tend to have various accounting skills and certifications such as a CPA license. It is perhaps the most desirable role within finance and those who aspire to become one must have foresight and polished analytical abilities. Perhaps this position is so desirable due to the various responsibilities, the median annual salary of $173,320, and the pride of driving a company to financial success (“How to Become,” n.d.).

Job Search (Wen Bo):

Handshake provides Stony Brook undergraduates with copious job opportunities. I found a job without much barrier to entry when I typed “finance” as the keyword in job search. According to its job posting on Handshake, it is a paid full-time job located in New York City, provided by Academic Leadership Charter School. The job title is “Finance Associate”, and the applications will be closed by April 16th, 2021. A handshake says that my profile matches with all of the company’s preferences. Taking my profile as an example, I am currently a senior with double majors in Business Management (specialization in finance) and Economics. I have a 3.67 GPA and am eligible of working in the United States. The company is looking for individuals who have developed an understanding for finance operations and know-how to solve problems using data analysis skills. In addition, this job requires verbal and written communication skills, experience using Excel, Quickbooks, and other financial data software, and multi-task skills. Responsibilities include managing school purchasing process, recording transactions, maintaining inventories, and providing the school with financial data reports. The company provides employees with medical benefits and 401K with a five percent match. This is an entry-level job within the field of finance. It does not require too much data analysis and in-depth financial analysis skills. Candidates with some financial academic background or individuals who know how to analyze data and composing financial reports would be good fits for this position. There are two application steps. If an individual is interested in applying, one could simply click the “apply” button on the bottom of the job listing page and upload one’s cover letter and resume. The company would send out notification emails once applications have been received. It is unclear whether or not the company would interview candidates, but I recommend individuals who are interested in this position to research for more information about the company and prepare themselves for an interview.

Internship Report in Department of Corporate Finance

About the Company:

Elixir Securities Pakistan (previously Indosuez W.I. Carr Securities) is one of the main, independent boutique Investment Banking & Capital Markets Advisory firms in Pakistan, established on account in 1994. They are a Corporate Member of the Pakistan Stock Exchange Limited & Pakistan Mercantile Exchange Limited and duly Licensed & Regulated by means of the Securities and Exchange Commission of Pakistan and Pakistan Stock Exchange Limited. Their predominant commercial enterprise sports consist of Investment Banking Services covering Strategic Advisory masking Mergers & Acquisitions, Debt & Equity Capital Raising, Sovereign & Privatizations, and Corporate Finance & Restructurings. Their Clients encompass the Government of Pakistan, Foreign & Domestic Financial Institutions (Banks, Asset Managers, Insurance Companies, Sovereign Wealth Funds, Pension Funds), Multinational & Pakistani Blue-Chip Corporates, and HNWI’.

What is Investment Banking?

Investment Banks are Non-Banking Financial Companies (NBFC) and are regulated by Securities & Exchange Commission of Pakistan (SECP). An NBFC is a financial institution that doesn’t have banking license but does provide banking services. These institutions do not have enough rights to take up deposits from public. However, all the activities of this body are still covered under banking regulations.

Investment Banking is a unique sector of banking related to the production of capital for other businesses and corporations. Investment banking deals in providing guidance to issuers regarding placement of stocks. Apart from that, an investment bank can undertake the following activities:

• Act as Underwriter
• Project Financing Portfolio Management – Discretionary & Non-Discretionary basis
• Eligible financier for capital markets
• Brokerage services without engaging in deposit raising activity
• Project Financing
• Issuance of guarantees and counter-guarantees.
• Advisory Services which include financial restructuring, mergers, professional analysis to investors for securities, assist in obtaining various types of finances including placement of debt and equity etc.
• Act as Underwriter Extend finance facilities
• Provide custodial/ trustee services subject to fulfillment of certain criteria.

Business Activities:

Equities:

• Elixir Securities has professional and devoted teams for institutional and retail sales, which is based in Karachi (HO), Lahore and Islamabad branches, servicing almost all major local, foreign institutional and retail investors
• In terms of client trading volumes, Elixir knobs transactions worth approximately PKR60bn (USD750mn) annually. Elixir knobs average daily trading volume of 7mn shares with an approximately market share of around 3% of the KSE daily turnover
• The company grips approximately 10% of the total foreign portfolio investment routed through the Pakistani equity market.
• FIX/DMA capability via MIXIT offers an electronic communications network and Direct Market Access to KSE and offers Elixir an edge for FII executions.
• Equity Sales & Trading team has great experience in implementing block deals by leveraging its relationship in the domestic market.
• Elixir is on the panel of big Foreign Broker Dealers besides having direct contacts with key FII’s in Far East, Europe and Americas
• Elixir examines its clients risk and return objectives through its own in-house risk assessment operations.
• Online Equity Trading Terminals are offered to HNW clients throughout the country and to Pakistani expats living globally.

Corporate Finance:

Elixir Corporate Finance (CF) provides a full range of Advisory & Arrangement services along with execution capabilities.

The Corporate Finance Team has a great exposure of major sectors of Pakistan’s economy, which include Oil & Gas, Telecom, Fertilizer, Pharmaceuticals, Banking & Finance.

The Corporate Finance team strives to provide clients with customized solutions with respect to their objectives. Strong sector and product expertise provides Elixir’s Corporate finance with an unparalleled edge over it’s competitors.

Management Profile of the Company:

• Fawaz Valiaani
• Chief Executive Officer

Fawaz Valiaani is an entrepreneur and an investment banker and has above 18 years of experience in securities brokering, investment banking & private wealth management. He has previously worked in Dubai, London and Karachi covering advisory in most asset classes which include equities, fixed income, corporate finance, Islamic investments, commodities and real estate. Fawaz has a vast experience in origination, structuring & execution of deals with major investment banks, alternate asset managers, private equity funds, and handled deal flow / investments above US$ 3 billion advising Family Offices, Corporates, Private Equity Firms and HNWI clients. He holds a BBA in The George Washington University.

Experience (19 Years):

• He has previously worked at BMA Capital Management, Halkin Investments, Valliani Capital and Fidelity Investments.
• Muhammad Moazzam Ali
• Head – Corporate Finance & Advisory

A self-motivated & accomplished professional with a great experience in Investment Banking and Corporate Finance including M&A, ECM, DCM, Restructuring and Valuations. He also has a vast experience of Deal Origination, Structuring and Execution. While at the Privatization Commission (Ministry of Finance / GoP) he broadly worked with global bulge bracket Investment Banks for almost 6 Years and successfully initiated, managed & closed transactions with total combined value of US $ 4.5 billion. He holds a M.Sc. from University of York, MBA from Lahore School of Economics, B.Sc. from Government of College Lahore

Experience (14 Years):

• He previously worked at Privatisation Commission of Pakistan and British Power International also.

Organizational Structure:

Departments in which I worked:

• Department: Corporate Finance
• Supervisor’s Name: Mr. Hamad Aslam
• Designation: Director Investment Banking.
• Duration: 6 weeks (1 Oct 2019-15 Nov 2019)

The function of Department:

Corporate Finance

Corporate Finance, being the prime focus of Elixir Securities, their main functions are to provide an extensive range of services, which include underwriting services for agencies that issue stock on the primary marketplace, dealer-provider services for both buyers and sellers of stock on the number one and secondary markets, merger and acquisitions offerings, help with corporate reorganization and financial disaster procedures, widespread consulting offerings for organizations large enough to have enough money them, and different such services related to elevating or moving capital.

Services of the Company:

1. IPO’s (Initial Public Offerings): The firm advises what type of security is to be issued (common or preferred), the most suitable offering price and the proper time to bring it into the market.
2. Mergers & Acquisition: The firm develops an acquisition strategy, set up a M&A search criteria, further searches for target companies, starts the acquisition planning, performs valuation, guides the client in negotiation and signing the deal, finalizes the sale and purchase contracts and finalizes the financing strategy.
3. Project Finance: The firm mitigates the Project Risk, starting with the pre bidding stage in favor of the client leading to examining the project agreements, analyzing the revenue hence finalizing the financial model.
4. Due Diligence: Elixir Securities undertakes an extensive process undertaken by the firm in order to thoroughly and completely assesses the target company’s business, assets, capabilities, and financial performance.
5. Secondary Public Offering: Elixir Securities provides help in the secondary offering of the sale of new or closely held shares by an organization that has already made an initial public offering (IPO).
6. Privatization Advisory: Privatization advisory is basically a service in which Elixir Securities does valuation of a government owned entity and attracts local and foreign customers to invest in.
7. Debt Advisory: Debt advisory is basically a service in which Elixir Securities provides debt restructuring as well as other debt related tasks of its clients.

Work Done

Corporate Finance Department:

The internship period in Corporate Finance department was for 6 weeks where I was given multiple tasks; I was allowed to view the whole process of merger and acquisition from its documentation to its compliance. During the internship period the firm was conducting evaluation of a government owned entity, which planned to go for privatization, NPPMCL (National Power Parks Management Company Limited) for which they assigned me to conduct a research on Pakistan country profile and the Power Sector of Pakistan that was included in the information memorandum of the respected firm. In order to achieve the given task, I thoroughly researched on the demand and supply of the power sector. Furthermore I analyzed the different players within the same sector and presented an overview on it to the respected CFO. The key element of this task was to examine and assess the regulations followed by the Power Sector. Moreover, I worked under the supervision of the finance manager to inspect the guaranteed returns of the previous decade of NPPMCL.

Also, I studied, scrutinized and added the interest rates, law and order, inflation rate and all other macro economic indicator in the Information Memorandum, which are directly linked with the company’s performance.

Theories learned in academics and their application

Department: Corporate Finance

• Treasury and Fund Management:

Basically I got the opportunity to learn how stocks are traded within the exchange market. I got to know about the big market dealers and how there point of view can change the entire sentiments in the market. The company had also performed stock evaluations and my manager guided me as to how each and every macro economic as well as micro economic indicator affects the stock market. Hence, studying Treasury and Fund Management gave me the opportunity to look towards the practical experience how treasury stocks as well as other market securities are valued.

I also got to know about the internal details of few companies that Elixir Securities is managing but due to confidential reasons the management has restricted me to further provide any data.

• Introduction to Macro/Micro Economics:

While conducting the research of NPPMCL, I got the opportunity to go towards a thorough research related to Interest Rates, Inflation Rate, GDP and other various indicators. I had to conduct an analysis how these indicators would affect the valuation of NPPMCL which would be going for privatization.

• Analysis of Financial Statements:

While conducting a thorough analysis on the financial statements of NPPMCL, I had to review the financial statements of the past decade and give an opinion over it as to what the overall performance has been of the company.

• Pakistan Economic Policy:

While preparing Information Memorandum the concept learnt was an essential as when writing the analysis and referencing it with historical events that took place gives an extra edge to the Information Memorandum.

New theories / Concepts learned

MASS DPGP:

I recently worked on this software in which an expense invoice is created. Moreover, budgeting which includes cash flows valuation was also learnt. This software also helped in the budget summary.

Application of Statutory Liquidity Ratio:

While reviewing the recent evaluation of one of the banks that Elixir just did valuation on, I got to know that SLR is the measure of cash that is to put resources into certain predetermined protections transcendently focal government and state government protections. By and by this rate is of the level of the all out bank stores accessible to the extent the specific bank is concerned. The SLR, the cash goes into speculation transcendently in the focal government protections as referenced before which implies the banks acquire some measure of enthusiasm on that venture as against CRR where it gains zero.

Excel Learning:

I wasn’t familiar how companies manage their accounts and clients on excel so I learnt that. However, due to confidential reasons I can’t mention as to how they managed all the other soft wares.

Recommendations:

If one really wants to work in the Advisory/Brokerage sector one should work at Elixir Securities as they give you so much knowledge and train you to such an extent that one can be an expert in Capital Markets and Investment Banking. The company opens the mindset of a Management Trainee specially a fresh graduate as he can apply all the concepts he has studied throughout his academic career. On the other hand, there are not much of negative things to recommend on but I feel that everyone should be aware of there job description because at times it leads to burden the employees as well as the fellow employees. So I would recommend the employee to focus on the objectives of the particular job description and make it clear as you start with the job in order to avoid work conflicts. Moreover, one gets to learn about the practicality of the Corporate Sector and how it actually works in Pakistan. Lastly, I also got the opportunity to learn a lot as the seniors made me extremely comfortable and made the environment open for suggestions/opinions.

• CEO
• Corporate Secetary and CFO
• Corporate Finance
• Accounts and Finance
• Admin and HR
• IT

Financial Technology and Corporate Finance in Pakistan: Analytical Essay

1.0 Introduction

Technology is nowadays changing the way of finance, accounting, and banking companies do business. Automation, A-I (artificial intelligence), and other forms of technology are causing organizations to change their strategic direction of how they approaches management, promote, hire, or retain their employees. Leading the charge is Fin-tech. The word Fin-Tech normally referred as (Financial Technology) is not a product or any app, it is basically a technology that has made online transactions and operations more effective and smooth and has made life of consumers much easier. It helps business owners, companies, and consumer to manage their financial operations easily by just simply using specialized algorithmic PDAs such as mobile phones, tablets or even smart watches. The services such as mobile banking, investing services, online banking, money transfer or payment services, cryptocurrency, fundraising, and asset management fell under the umbrella of Fin-Tech. Fintechs also plays a significant role to financial institutions by providing them the products and services that help them running their operations smoothly and efficiently and helping them in spreading of the industry.

Corporate Finance is the area of finance that deals with financial and investment decisions that managers take to increase the profitability ratio and most importantly the value of the firm. It also deals with the sources of funding and the capital structure of a company. Basically, it is the division of a company that deals with business needs, planning the finance, arranging the funds, investing, and monitoring. The Corporate finance departments basically look into governing and overseeing the corporation’s financial activities and capital investment decisions. Such decisions include whether to pursue a proposed investment, whether to pay for the investment with equity, debt, or a hybrid of both, and whether shareholders should receive dividends. Additionally, the finance department manages current assets, current liabilities, and inventory control.

Financial Technology’s market is now expanding with an increasing diversity in scope of businesses, funding sources, and geographically in Pakistan. As Pakistan is still in development phase many rural areas of Pakistan are deprived of technology. Access to electricity is very limited. Areas like interior Sindh, Punjab, Khayber PakhtoonKhuwa and Balochistan are still facing many challenges regarding electricity but as of now as the development is in progress Fintech companies have started operating in these areas. For consumers, financial technology offer personalized and interactive services by allowing them to conduct transactions over their mobile device, boosting customer experience. Among the notable services that allow consumers to make online payments are UBL OMNI, EASYPAISA and JAZZ CASH can be related as they have started their operations all over the Pakistan and their prime focus was to ease up the transaction process especially in rural areas where the amounts of banks are very limited.

2.0 Literature review

2.1 Financial Technology’s Growth in Pakistan

Fintech growth has been driven by numerous factors, including technological evolutions, digitalization of financial services, e-commerce influence on consumer demands, increase in the number of online transaction apps, and much more.

Firstly if we consider the technological factors or evolution of technology, it has a significant role in the advancement of FinTech across the globe. New algorithmic software-enabled many PDAs to work efficiently and smoothly in order to carry out task. The innovation and advancement of smartphone devices with new features, has led people to opt for financial services that are readily available on mobile phone, such as money transfer, online transactions and payments, and even mobile banking.

Digitalization of financial service has also played a vital role in boosting up FinTech across the globe, especially in Pakistan; people were used to of same old traditional banking system, by visiting bank and carrying out their processes. With the introduction of FinTech, according to studies and PWC surveys in US, 49 % people are now using their Laptops and mobile phone for their financial management instead of visiting bank personally. Moreover, now a day’s online cab system like Uber, Careem or Bykea are being introduced to make travelling within or out of city more easy and safer, as well as cheaper.

Furthermore, if we consider the consumer demands, we see that to cater their needs e-commerce has further facilitated transformation of digital payment through online wallet system such as UBL omni or easy paisa or jazz cash, etc.

Financial Technology is growing in Pakistan exponentially, aiming to replace the traditional financial services, even if it is not trying to replace it, it is there to help or facilitate people to ease up their transaction procedures e.g money transfer, online payment, etc. The Government of Pakistan have identified many ways they would be using Financial technology to implement their policies, one of the example is to replicate the health insurance, which they implemented in KPK, a health card having coverage above half a million, creating a source for everyone to have access to excellent health care regardless of their income thus providing a chance to live a better and healthy life.

2.2 List of FinTech Companies in Pakistan

1. Pakistani fintech: here are some of the best you need to be aware of.
2. AutoSoft Dynamics: It is a company that develops financial applications for different businesses.
3. AbacusConsulting: Like auto soft dynamics, this company also specializes in developing software that are known for financial calculations and that helps smoothing business operations.
4. Finja: An effort put to produce innovative financial services accessed through digital means like mobile laptops, palmtops, etc. It is Pakistan’s first payment solution payments in real-time.
5. Easy Paisa: This app is developed by Telenor Pk and it allows user to do multiple task such as utilities bill payments, money transactions, or mobile top-up or purchasing, cinema tickets etc.
6. OneLoad; This application is especially designed to facilitate user to top up their mobile accounts using mobile phone while sitting at home/ offices.
7. Payload: This company accept bitcoin payment in Pakistan and it is one of its first kind to operate in Pakistan.

2.3 Challenges and Opportunities face by Fintechs in Pakistan

FinTech industry in Pakistan faces many hurdles including no support from larger organizations and government in regularizing their body and providing them with sufficient funds. Secondly, it happened many times that these companies faced many complicated and unfavorable regulations that halted their operations disrupted their revenues or income. No proper funding was done at their early stages, when they are just stepping into the new world of innovation. They face many problems in getting their license like it is mentioned earlier that they faces regularization problems. Moreover if somehow companies start its operations no one takes the responsibility to mentor it. No interest in the company’s operation is shown by the government or larger organizations. These were some legal and funding issues however if we look to the demographic issues, there are many places in Pakistan and not only in Pakistan but across the globe where people are deprive of basic necessities and in those areas these companies cannot operate. Backward areas where there is very limited access of internet, cannot fulfill the need of these companies, for example, Careem is very well known company for online booking of cab, however they fail to operate in small cities where there is very limited sources of internet, and where technological advancement chances or probability is extremely low, like below the belt. Furthermore, security issues are also vital threat to these companies, like hackers can hack into personal account and can retrieve data of millions, and can manipulate it. So security is an also a significant threat.

Well now if we discuss the related opportunities of financial technologies companies in Pakistan, it would not be wrong to say that they have a bright future in excelling here. Pakistan is the sixth largest population in the world and is amongst the most numbers of technology users. Secondly, 15 % of Pakistan’s financial ratio is low as compared to 33 % average ratio for middle-income countries. Moreover, on the basis of comparative studies it is expected that 25 million of debit card may come online through local payment gateway. Furthermore if we consider technological opportunities we see that 61 % of internet users are present in Pakistan. In 2016 there were 16.6% smart phone users in Pakistan which is expected to grow to 51% in 2020. In addition 92% of the land has telephonic and internet coverage that allow these companies to grow more. So considering these factors we see Financial Technology Industry has bright future in Pakistan.

2.4 Impact of Fintech on Corporate finance

Corporate finance this term describes itself as the interaction between a company’s managers and investors and its impact on company value. i.e. the theory of corporate finance tries to explain financial contracts and investment behavior arising from the interaction between managers and investors (according to this theory, managers should make unbiased forecasts of future events and use them in making decisions that best suit their own interests) (Baker & Wurgler, 2011). According to corporate finance many business executives and investors act rationally when taking financial decisions. If the assumption of rational behavior is correct, managers can expect that capital markets are efficient, implying that stocks and bonds are priced correctly at every given moment.

Now a day as long as people have the access to internet facility, they can actively use their smartphones and other PDAs for online banking. Innovations in technologies especially financial technologies and their growth has given rise to new opportunities and they are increasing day by day and it wouldn’t be wrong to say that this is due to growth of modern internet and its penetration into our society. This modern technology has allowed users to open up their bank accounts while sitting at home without their physical presence at bank, until it is not urgent to be present. With the help of technology they can link our bank account to our mobile phones using their applications and this can be use it to monitor our transactions on daily/weekly or monthly basis. Like it is being mentioned before that smartphones can be turned into a “digital wallet” and can be use for transaction purpose. One of the most common examples now a day is of cryptocurrency, the payment can be done by transferring BITCOINS through E-Wallet.

Financial technologies plays an important role is corporate finance. As corporate finance deals with the investment decision, funding sources, and capital structure of the company. So financial technologies help the firm to manage their operations, take decisions effectively by using different software and algorithms that are used on computer and smartphone. Such as mobile payments, mobile wallets, online investments, cloud computing, and software such as Investment Plus, Profit book, DAVIGOLD etc. Through which you can get to know that exactly where capital is being invested an in which sector you are being benefited/which sector of investment will help your financial earnings grow. Through this we can also get to know about our competitor’s activeness.

As mentioned earlier corporate finance is mostly about taking the investment decision, (when to invest, how to invest, and where to invest) by using different investment tools. Nowadays internet become major source of investing. It provide access to websites that allows online investment for example online investing website named as IQ option. These websites are very easy & simple to use and with the investment as low as 1$ it proves that they are inexpensive also. There are now video tutorial available on different websites providing with information about investing. There are websites available that provide with the facility of financial calculations online (e.g Financenter.com). Stock Quotes and portfolio tracking websites. There is a lot of price information available of bonds, mutual funds and stocks, such as information related to current interest rate of the country, information about the bonds availability on internet or mutual funds. The investors who have ample amount of knowledge about when to invest in particular stock can also use financial technologies in decision making, which include different online investment decision forums. Financial technologies plays a huge role in corporate finance sector as investor with the help of internet now enter order directly online. It makes investment easy and quick. No need of scheduling appointments with a financial counselor. Best investment sites include (MSN Money, CNET NEWS)

Secondly corporate finance also deals with the funding sources and by using financial technologies we can go for “crowdfunding” which is like providing funds to a project by collecting money in any amount whether it is small or large from people all over the world, with the help of social media, crowd funding websites and through other means using internet. Through crowd funding, the funds have been used to support many young and talented entrepreneurs to show cast their talent and to do something in order to compete in this tough business environment.

3.0 Hypothesis

• H1: financial technology affects the corporate finance
• H2: financial technology influence people to select it as a career
• H3: future new innovations made in finance can be observed through digitalized application

The above-mentioned hypothesis creates link between Fintech and Corporate finance.

The H1 states: financial technology affects corporate finance

As mentioned in the literature cited above the financial technology play a vital role in corporate finance like as corporate finance deals with all financial operations and investment setup, fintech help them in smoothing their operations like one of the company abacus consulting is a Fin Tech company that make software for businesses.

The H2 states: financial technology influence people to select it as a career

Fintech such as careem and uber has influenced many people most them who are unemployed today, to choose it as their source of income and many of them has adopted as their permanent source of income like as a career.

The H3 states: future new innovations made in finance can be observed through digitalized application

• Efficient market theory
• Capital budgeting theory

Just need to use above theory as a referencing anywhere it is necessary. The research topic is quite new to this sector as previously work done on financial technology is not specifically linked to the corporate finance , rather corporate finance is used as linking bridge between new financial innovation in technology with firms’ performance. In this research, the impact of new technologies is directly linked with corporate financial sector so that the deeper aspects of the firms can be accessed.

4.0 Methodology

4.1 Unit of analysis:

The unit of analysis in this study is individuals. We conducted interview of some Careem Operators and some drivers who works for careem, they are very happy with this initiative and wanted more projects like this to start-up in Pakistan as they said that these technologies has eased up their work and has helped their sales to grow at faster rate because these technologies are user friendly and consumer are very satisfied using these app.

4.2 Research method

The research method involves how the data would be collected for the research in this particular the data collection method chosen is qualitative method. The qualitative research method is the one in which the primary data collection is through exploration and observation. As our goal of this research is to explore the reason behind Fintech’s Popularity in Pakistan and its impact on corporate sector of Pakistan. Moreover, the data collected is cross-sectional because this only a one time study.

Corporate Finance in the Case of OYO in India: Analytical Essay

A decision is the financing decision involving fundraising from debt (loans) and equity (shares) at the lowest possible cost to the company. Debt capital include borrowings, accounts payable, and other commitments; while equity capital includes sale of shares, retained earnings, and returns on investments. This decision also refers to capital structure representing the proportion of firm financing from debt (bondholders) and equity (shareholders). If company borrow money or issue debt securities, they have to pay compensation to bondholders or borrowers who lend funds to firms by paying principal and interest on loans. Whilst if the company sells equity securities, they need to distribute cash in the form of dividends to shareholders.

Dividend decision is the third decision which refers to working capital management that handles the balance of current assets and current liabilities. This decision primarily relates to how short-term operating cash flows should be managed, whether to reinvest in firms or return capital to debt and equity investors. Table 1 provides more specific real-life examples of investment and financing decisions by major public corporations.

Table 1. Investment and financing examples

• Source: Brealey et al. (2011); Anand (2002); Besley and Brigham (2000).

When making these decisions, the main purpose of corporate finance is to maximise shareholder value through long-term and short-term financial planning and execute management resources while balancing profitability and risk. Thus, corporate finance is a study of the relationship between business decisions and firm value to shareholders.

1.1 Corporate Finance Practices

There are several corporate finance practices aiming to maximise shareholders’ value:

1.1.1 Capital Budgeting Practices

Capital budgeting mainly deals with whether to pursue an investment to generate highest risk adjusted returns. Firm will identifies capital expenditures, estimates cash flows from the project, compares alternative projects, and lastly decides which projects to include in the capital budget. Hence, capital budgeting practices defines the firm’s investment opportunity schedule. Table 1.1.1 shows the notable investment evaluation tools for corporate manager. Damodaran (2014) and Anand (2002) stated NPV and IRR are often used as primary investment criteria in comparing the projects.

Table 1.1.1 Investment Evaluation Tools

1.1.2 Capital Structure Practices

To finance its capital expenditures, firm seek to finance with debt, equity, or mixture of both. Balancing both sources of capital should be carefully managed because too much debt can increase the risk of default in repayments while relying too much on equity can dilute earnings and value for the original investor. Hence, the practices of capital structure is optimising the firm’s capital structure that result in lowest weighted average of the cost of debt and equity, also known as the weighted average cost of capital (WACC).

1.1.3 Working Capital Management

This practice involves determining whether profits should be distributed to shareholders in the form of dividends or kept in business for sufficient resources. Retained income can be used to finance the businesses’ future investment and operational requirement. This is often the best source of funds, without incurring additional debt or diluting equity by issuing more shares.

2 Corporate Finance in the case of OYO in India

This section discusses OYO’s success story based on a corporate finance perspective.

2.1 About OYO Rooms

OYO Rooms (OYO) is a six-year-old start-up for hotel booking and is the largest budget hotel chain in India. The company was founded in 2013 by Ritesh Agarwal and based in Gurgaon, India. Referring to Figure 2.1, OYO’s global hotel chain has spread to more than 304 cities in India, Malaysia, Nepal, China, Indonesia, the United Arab Emirates (UAE), and the United Kingdom (UK), with more than 8500 hotels and 270,000 rooms offering convenient in-room experience at affordable price.

Figure 2.1 OYO’s Global Network

The company’s vision is to replace the way people stay away from home and become the most preferred and trusted hotel brand in the world. Based on its website, OYO focuses on the three main goals shown in the table below.

Table 2.1 OYO business objectives

• Source: Oyorooms.com (2019)

Based on Table 2.3, Oyo has launched new segments to further sustain in market.

Table 2.3 Different segments for OYO Rooms

• Source: Sathyanarayanan (2015), Srinivasan (2017), and Chengappa (2018)

2.2 OYO Success Stories

Oyo started in May 2013 with one property (Oyo Rooms Huda City Centre) in one city (Gurgaon, India) and as of Jan 2019 has grown to over 8500 properties in more than 300 cities across nation with recorded of four (4) million booking room nights every month. OYO revolutionised the traditional legacy-driven hospitality space by providing standardised budget hotel rooms with features such as an air-conditioned room, free breakfast, free Wi-Fi, clean bathroom, and branded toiletries with 24-hours customer service support (Figure 2.3).

Figure 2.3 Facilities Provided in OYO Rooms

Additionally, the OYO Room app now has over 10 million downloads, allowing guests to reserve hotel rooms on the go, order food and beverages, request room service, find restaurant nearby, and book a cab through the app. OYO also provides a special assistance service through OYO Captains which ensure on-ground support for convenient travelling and in-room experience. Thus, guests can book hotel rooms with OYO through call centre, website, and app.

According to Oyorooms.com (2019), the company was selected as the Most Promising Hotel Network in India and has obtained several awards including the 2015 Express IT Start-up of the Year Award, 2016 NDTV Dream Chaser of the Year, and 2016 IAMAI Digital Start-up of the Year. By the end of March 2017, their consolidated revenue was declared at $ 19 million. Argawal told reporters of Nikkei Asian Review that OYO’s earnings for the end of 2017 rose by 130 percent; while in year 2018 it was increased by 200-300 percent on previous year. This significant increase in OYO’s revenues has proven the company’s success.

2.3 OYO Business Model

OYO Rooms started as a hotel aggregator where they partner with hotel owners by signing a contract and ensuring the hotel provides standardised quality of services under its own brand. Table 2.4 illustrates the Oyo aggregator business model.

Table 2.3 Oyo Aggregator Business Model

• Source: Pahwa (2017)

As of December 2017, Oyo changed its business model from hotel aggregation to franchises. OYO stops aggregating hotels on its platform and allows hotel owners to operate hotels under its brand. Anupam (2017) stated the transformation was to decrease operating costs and enhance serviceability.

Moving from an aggregation into a franchise business model has allowed OYO to increase its monthly commission charged from hotel owners by 5 percent point from 18% to 22%. Besides, Salman (2018) also stated that OYO has around 60,000 rooms and adding another 10,000 room every month under its fully managed franchise model. Traditionally, it took more than 10 months to sign a franchise agreement with new hotel partner. However, the transformation in franchise model enables OYO to improve its inventory management and the time it takes to sign franchise agreement within 5-10 days.

According to Nikkei Asian Review (2018), OYO uses ORBIS, a mobile app that allows hotel partner to instantly estimate earnings, risks of involvement, and other expenses once their property is brought under OYO brand. If the hotel partner agrees with the estimated amount, Oyo’s civil engineers will visit the property and access the capital expenditure required to run the hotel. The franchise agreement can be signed using the ORBIS app instead of the traditional time-consuming signing process with paper-based agreements and few lawyers making negotiations. After making the deal, Salman (2018) stated designers and architects of OYO will make a renovation plan and their construction engineer will be able to make the renovations and construction works done within 3-14 days depending on the property size. In addition, the company hires hotel staff and floor managers to manage overall operations.

2.4 OYO Source of Capital

OYO is a public corporation where they can raise capital by selling shares. According to Chanchani and Gooptu (2018), the largest shareholder in OYO is SoftBank which holds about 45%, followed by Lightseepd Venture Partners with 15%, and Sequoia Capital with about 11%. The company is funded by seven (7) leading global investors, including China Lodging Group, Grab, Greenoaks Capital, Hero Enterprise, Lightspeed India, Sequoia Capital, and SoftBank Group. The table below summarise the funding of Oyo rooms since it established.

Table 2.4 OYO Rooms Funding Analysis

• Source: own construction based on research by Rai (2015), Vardhan (2015), Sen (2016), Sharman (2016), Mishra (2017), Sean O’Neill (2017), and Chengappa (2018).

In December 2012, OYO Rooms raised $ 5 million in its first round of funding from Venture Nursey. Later in 2013, Ritesh was granted a $100,000 from Thiel Fellowship to pursue his start-up idea. By May 2014, OYO also raised about $650,000 in seed funding from DGS Consumer Partner and Lightspeed Venture Partner. Then, OYO raised another Series A round of funding $25 million from a group of investors including Sequoia Capital, Lightspeed Venture Partners, DSG Consumer Partners, and Greenoaks Capital. In July 2015, the company has raised $100 million in its fifth round of Series B funding led by venture capital from SoftBank Group.

Additionally, the OYO aggregation business model in Aug 2016 also raised $ 90 million from its existing investor, SoftBank. In this case, Sharma (2016) stated that OYO has received $61 million and the company will receive the remaining fund of $29million in mix of equity financing and debt financing. Oyo raised total $ 5 million in debt financing from InnoVen Capital. A year later in September 2017, Oyo raised another two rounds of funding. The company first closed a $ 250million funding from Softbank Vision Fund and it was followed by another $10 million corporate round of funding from China Lodging (Mishra, 2017; Sean O’Neill, 2017).

After the shift in franchise model in late 2017, Oyo raised $ 1 billion Series E funding in September 2018. Chengappa (2018) stated 80 percent of Series E $ 1 billion financing was led by SoftBank’s Vision Fund with participation from existing investor including Lightspeed, Sequoia, and Greenoaks Capital while the rest of 20 percent is raised by unnamed investors. This round of funding values the OYO Rooms at about $5 billion.

The latest round of funding was $ 100 million raised from Grab in series E. According to Nikkei Asian Review (2018), after the last round of funding, Argawal is estimated to own less than 10 percent of the company. Based on Figure 2.5.2, the company franchise business model has raised around $1.6 billion in multiples rounds of funding.

Figure 2.5.2 Total Capital Raised in Oyo

In short, Oyo’s capital structure largely comprises equity financing which shows that the bulk of its capital expenditure is funded by equity rather than debt. In other words, there is more investor funding used in business operations.

2.5 OYO Capital Budgeting

Oyo’s investments are primarily focused on technology development, property development as well as mergers and acquisitions. For example, Oyo in 2015 raised 125 million to build innovative technology products, increased customer acquisition, and expanded its technology-enabled hotel network globally to 50,000 rooms across 100 cities by the end of 2015 (Paul, 2015; Vardhan, 2015). In the words of Prasad (2016), Oyo also used the new $ 90 million fund raised in 2016 to increase its offerings, ‘OYO Flagship’, which allows hotel owners to have full control over the hotel’s business operations. In 2017, Oyo has used SoftBank funds to invest its newly launched OYO Townhouse to create luxury and self-managed hotels under the Townhouse brand. It also allows OYO to fend off competition from online travel agencies (OTAs) such as MakeMyTrip and Goibibo. The funding has been used to diversify long-term investment in technology, international expansion plans, and merger and acquisition (M&A).

2.5.1 International Expansion

Having raised funds, OYO planned to invests in South-East Asia and further expand its international market. In 2016, OYO launched its first international operation in Malaysia, followed by growing to Nepal in May 2017. According to Shah (2018) and Shrivastava (2018), Oyo raised another $1 billion in September 2018 and the company plans to invest $600million of this new funds in China and use the remaining funds to expand its business in India. In 2018, OYO further expand its international presence by launching its commerce operation in UK and China in June and November respectively. Since venturing into China, OYO today has around 50,000 exclusive rooms in 26 cities including Nanjing, Shenzhen, Chengdu, and among others.

Figure 2.5.1 Number of Rooms in China (Source: ChinaGoAbroad.com, 2019)

OYO has announced that it moved to UAE in October 2018 by launching operations in Dubai, Sharjah, and Fujairah with more than 1,100 rooms. With the recent $1 billion funding raised by Softbank, Oyo plans to open more than 12,000 rooms in 150 cities throughout UAE by next year (The Hindu, 2018). Additionally, OYO was recently officially launched in Indonesia with 30 hotels in three cities namely Jakarta, Surubaya, and Palembang, which are operated under lease or franchise agreements. Sorrells (2018) stated that OYO has announced a $ 100 million investment to extend trade operations to 35 cities in Indonesia in the next 15 months. As of Jan 2019, Oyo doubled its investment to $ 200 million planning to reach 2 million rooms in 25,000 hotels in Southeast Asia by 2023 (Hamdi, 2019).

2.5.2 Inventory of Property

Table below shows the expansion in Oyo properties over past six years, which has increased in Oyo’s total assets. The company started with one property in one city and now has increased to over 8500 properties in more than 300 cities.

Table 2.5.2 OYO’s Inventory of Property

• Source: Oyorooms.com (2019)

2.5.3 Technology and Quality Services

Oyo also focuses investment in technology to ensure the company remain prepared in the future. In this case, they use machine learning techniques to understand customer behavioural patterns, which in turn improves customer experience and drives key business metrics such as conversion and repetition rate. Based on Crunchbase (2019), Oyo using 42 technologies for company tech (Figure 2.5.3.1) and 34 technologies for its website (Figure 2.5.3.2).

Table 2.5.3.1 Technology Products and Services used in Oyo

• Source: Craft. co (2019)

Table 2.5.3.2 Oyo Website Technology Profile

• Source: Builtwith.com (2019)

The funds will also be used to set up a new technology development centre in Telangana to support technical expertise (Gupta, 2018; Anupam, 2017). With over 700 engineers in current Oyo’s Technology Team, several mobile apps has been successfully developed to improve customer experience and hotel operations, these include Oyo App, Oyo Owners, Oyo OS, Co-Oyo, Krypton (Audit app) and Oyo Mitr which shown in Table below.

Table 2.5.2.3 Oyo Mobile Applications

To ensure the quality of services, Oyo also use funds to finance construction and renovation converting unbranded hotels to OYO brand to provide standardised services. In addition, Oyo employed professionals across different functions and capabilities including sales and marketing, technology, accounting, customer relationship management, civil and software engineers, interior and exterior designer to deliver quality services to OYO guests (Bhattacharyya, 2017). By Jan 2019, Oyo recruited around 7000 employees and is planned to employ over 2,020 technology experts and engineers by end of next year. According to Hertzfeld (2018), Argawal stated with another 2,020 professionals joining Oyo, they will continue invest in technologies including Machine Learning, Internet of Things (IoT), Artificial Intelligence (AI) and other newer technology.

2.5.4 Merger and Acquisition

Merger and acquisition play an important role in corporate finance because expansion through acquisition enhance potential aggressive growth in the company. In the case of Oyo, founder acquired three companies for their competency that can assist their business and provide more facilities to their customer. However, the financial transaction of the three acquisitions were undisclosed.

Based on Table 2.5.3, Oyo first acquired Novascotia Boutique Homes in March 2018 for its expertise in operating the corporate and service apartment segment. Then, Oyo has acquired AblePlus Solutions, a Mumbai-based technology company that develop hospitality-based internet of Things (IoT) solutions such as remote monitoring, IoT managed smart locks, management of rooms across hotels, control of hospitality utilities. According to HRA Today (2018), Ritesh Argawal added that OYO in forthcoming years will develop voice-based assistance in hotel rooms allowing automation in appliances, and guest entertainment programme that will include gaming, fitness, and augmented experiences. The most recent acquisition is acquired Weddingz on August 2018 moving OYO into wedding banquet services and get access to their 1500 wedding events per quarter. Varshney (2018) stated the company also introduced “Auto Party”, a new service that offers banqueting and event planning services for weddings and other events.

Table 2.5.3 OYO Recent Acquisition

At present, OYO also partnered with over 8000 real estate owners and build strategic partnerships. For example, Oyo corporate with Ola in 2015 for cashless payment platform; while in 2016, it partners with Crown-it to enhance hotel booking experience, cooperating with IRCTC to use technology, teams up with Paypal for international reservations and payment, and partners with ItzCash building strong omni-channel presence; it also alliances with Telangana Government (NITHM and TSTDC) in 2017 to promote hospitality and skill development; as well as cooperating with Airbnb in 2018 to expands as business travel platform.

2.6 Conclusion on OYO Corporate Finance

Oyo is a public corporation with a franchise business model dealing with corporate financial decisions to maximise the shareholder value. Their capital structure largely comprises equity financing from the sale of shares.