Essay On Corporate Investment Analysis

1645 Words4 Pages
bulb-icon

Recommended: Advantages of investment analysis

Corporate investment analysis
Investment analysis takes different forms and is applied to support a number of key decisions throughout the investment, acquisition and program cycles. Several approaches are used in this analysis. This includes; cost benefit analysis, alternatives analysis, business card analysis and economic analysis. This paper explains different aspects in the corporate investment analysis. It also highlights the use of derivatives to efficiently manage investment risks in an investment portfolio.
Why investors may be attracted to high-risk investments
Does the higher return from investment come with increased risk? This is a question usually asked by many before investing in a complex investment vehicle. The most definite answer is yes. There is a direct correlation between higher risk investment and returns (Denis Babusiaux 2005). The quest for higher returns leads to venturing in complex investments with greater risks and increased possibility of investment losses. The riskier and more esorotic products promise more yields and higher returns. Although there are gains, direct chasing of returns in a difficult environment, like volatility in the stock at market, low yields are usually associated with higher risks (Gaylon 2003).
Risks associated with exchange-traded derivatives
The use of exchange traded derivatives can inflict substantial losses to investors. Trading of derivatives on exchanges can be faced with a number of risks. Borrowing and leverage are some of the major causes of the losses. The presence of relatively low cost alternatives to buying of stocks has eased the number of risks, although the major ones still ...

... middle of paper ...

...tructures and investment portfolio.Before venturing in any investment a thorough analysis is required. Setting criteria on what to invest on depends on the understanding of corporate finance and market principals. Derivative markets have in the recent past been accused of fueling the current financial crisis in the world. As stated by the G-20s, financial reforms need to be undertaken in order to save the world’s economy from crumbling.

REFERENCES
Denis Babusiaux (2005) Corporate Investment Decisions and Economic Analysis. Chicago.
Roses & Sons (Oct 15, 2009) Financial Derivatives: Pricing and Risk Management. New York: Random House
Maurice &Edward (2011) Single Stock Futures: An Investor's Guide. Oxford University
Eddy Wymeersch, Klaus J (2012). Financial Regulation and Supervision: A post-crisis analysis. Missisipi.

Show More
Related

  • Risks Facing Investors in the Article, Can We Keep Our Promises?” by Robert D. Arnott

    1677 Words  | 4 Pages

    The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor.

    Read More

  • Carnival

    820 Words  | 2 Pages

    ...t example of short-term worries providing an opportunity for long-term investors to make a great investment.

    Read More

  • Caterpillar Inc: Implementation, Strategic Controls, and Contingency Plans

    2120 Words  | 5 Pages

    Caterpillar Inc. also faces the risk of its cash flow and earnings being affected by fluctuations in the exchange rates of currency, commodity prices, and interest rates. To control for this, the company’s Risk Management Policy ensures prudent management of interest rates, commodity prices, and exchange rates of foreign currency by allowing the use of derivative financial instruments. According to the policy, the derivative financial instruments are not supposed to be used for the purpose of speculation. In its pricing strategy, Caterpillar Inc. faces the risk of difficult shipping of its products. This risk can be encountered by offering its products on instalments and lease to its loyal customers (Caterpillar, Inc. (CAT), 2011).

    Read More

  • Are Theories of Dividend Payment Applicable in the Real World

    1490 Words  | 3 Pages

    Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D., 2008. Modern Financial Management: International Student Edition. 8th Edition. New York: McGraw-Hill Companies.

    Read More

  • Barings Bank

    1458 Words  | 3 Pages

    The expanding global market has created both staggering wealth for some and the promise of it for others. Business is more competitive than ever before, and every business, financial or product-based, regardless of size or international presence is obligated to operate as efficiently as possible. A major factor in that efficient operation is to take advantage of every opportunity to maximize profits. Many multinational organizations have used derivatives for years in financial risk management activities. These same actions that can protect multinational organizations against interest rate futures and currency fluctuations can be used to create profits for those same organizations.

    Read More

  • Portfolio Analysis and Investment

    987 Words  | 2 Pages

    In your response, build upon extant portfolio theory and make sure to talk about different types of risks that investors might face and how they go about managing such risks. This means you need to consider topics such as efficient frontier and optimal portfolios; as well their relevance to investment theory. Furthermore, given the nature of the assignment, avoid bringing the brokerage industry into your discussion. In other words, assume you can invest directly in the stock market and do not need any financial intermediaries like brokerage houses.

    Read More

  • Critical Reflection of the Porter Five Forces Concept

    1474 Words  | 3 Pages

    By using this structured analysis, firms can more easily evaluate the attractiveness of an industry and gain a complete overview of all relevant competitive factors that have to be considered in the process of establishment. It helps to better understand the present market structure and to evaluate as a consequence of that external threats and opportunities. Unfortunately, the analysis established by Porter is not a guarantee for success and above that, it is often accused for limitations, lack of considerations and inoperative outcomes. The non-observance of a collaborative economic behaviour and of governmental influence, the inflexibility of the model and furthermore lack of application to rapidly changing market conditions are major limitations that have to be considered.

    Read More

  • Cost and Benefit of Hedging Risk Using Financial Derivatives

    818 Words  | 2 Pages

    Finance theory does not provide a complete framework for explaining risk management under the fluctuated financial environment in which firm operates. Hence, for corporate managers, they rank risk management as one of their top priorities. One of the strategies to reduce risk is by hedging. This paper will discuss the advantages and disadvantages of hedging risk using financial derivatives.

    Read More

  • Investment Strategy

    1502 Words  | 4 Pages

    We analyzed the market for two weeks to determine when the equity market would turn from a bearish to bullish market. Without a change in the market and a declining bond price, we decided to invest in equities according to our investment strategy, which brought us into the second phase of our portfolio. Therefore, at the beginning of February we bought shares in Sirius, Microsoft, Neon, Washington Mutual, and Nike. As assumed, the equity market continued to plummet decreasing the value of all our stocks except for our Gold Corporation stock.

    Read More

  • Essay On Global Expansion

    603 Words  | 2 Pages

    Investing or venturing into the international market involves critical analysis of the internal and external environment in which the company operates. Usually, a company will decide to venture internationally due to a saturated market or fierce competition in the current country of operation. The demand for a company’s products may have diminished as a result of an economic crisis thus the company will target a foreign market to sustain its sales. In other words, the firms expand internationally to seek new customers for its products. For example, the current Euro zone crisis led to low demand in Europe and many companies extended their businesses to emerging markets where demand was high. A company may also venture in the international market to enhance the cost-effectiveness of its operations especially for manufacturing companies that will benefit from low costs of production in developing world. Global expansion is a long term project as it involves demanding logistics to be successful. Thorough research must be undertaken to ensure that the expansion will create value for share...

    Read More

  • Exhange Risk Faced by Multinational Corporations (MNCs)

    1553 Words  | 4 Pages

    Other types of exchange rate risks are translation risk and so-called hidden risk. The translation risk relates to cases where large multinational companies have subsidiaries in other countries. On the financial statement of the whole group, the company may have to translate the assets and liabilities from foreign accounts into the group statement. The translation will involve foreign exchange exposure. The term hidden risk evolves around the fact that all companies are subject to exchange rate risks, even if they don’t do business with companies using other currencies. A company that is buying supplies from a local manufacturer might be affected of fluctuating foreign exchange rates if the local manufacturer is doing business with overseas companies. If a manufacturer goes out of business, or experience heavy losses, it will affect all the companies it does business with. The co...

    Read More

  • Quantitative Theory Of Portfolio Theory

    1486 Words  | 3 Pages

    The financial objectives of the investor determines what types of assets to be used. In this paper a quantitative approach of choosing the portfolio will be discussed.

    Read More

  • Risk Management Framework

    1881 Words  | 4 Pages

    No firm can be a success without some form of risk management. Risk are the uncertainty in investments requiring an assessment. Risk assessment is a structured and systematic procedure, which is dependent upon the correct identification of hazards and an appropriate assessment of risks arising from them, with a view to making inter-risk comparisons for purposes of their control and avoidance (Nikolić and Ružić-Dimitrijevi, 2009). ERM is a practice that firms implement to manage risks and provide opportunities. ERM is a framework of identifying, evaluating, responding, and monitoring risks that hinder a firm’s objectives. The following paper is a comparison and evaluation to recommended practices for risk manage using article “Risk Leverage

    Read More

  • Essay On Derivatives Of Derivatives

    700 Words  | 2 Pages

    In modern times, derivative products have become widely used tools to help investors, organizations and governments manage risk that could arise from factors like unstable commodity prices, changes in currency rates and interest rates in general. A derivative is an asset whose value is derived from the value of an underlying asset that is used to hedge a potentially risky outcome. These underlying assets include a wide range of effects, such as metals, commodities, energy sources and financial assets. Derivatives are evaluated on a balance sheet differently depending their type. This is due to the way they are bought, sold and traded. As such, derivatives come in different variants with the most common being Forwards and Futures Contracts, Call and Put Options and Swaps. This paper will evaluate the potential gains and losses for the different derivative variants while describing their risk potential. As well, this paper will discuss different methods for valuing derivatives.

    Read More

  • Financial Theories And Strategies

    1533 Words  | 4 Pages

    Using the Modern Portfolio Theory, overtime risk assets will provide a higher expected rate of return, as compensation to the investors for accepting a high risk. The high risk will eventually lower collecting asset classes to the portfolio, thus reducing the volatile risk, and increasing the expected rates of return. Furthermore the purpose of this theory is to develop the most optimal investments portfolio which would yield the highest rate of return while ascertaining the risk for the individual or corporate investor.

    Read More

More about Essay On Corporate Investment Analysis

Open Document