Free cashflow means cashflows generated by a company in excess of all its operating and investing needs. It’s not free in the sense of “costless”, rather it’s available for distribution to capital owners, or for re-investment in the business. * … Continued
This page brings together a number of posts that I call key financial concepts. Each is explained simply for non-experts, mostly without any diagrams or equations. They are intended to be helpful to students or anybody just curious about finance. … Continued
A key question in corporate finance is, how should companies decide when to invest the funds at their disposal? The best answer provided by financial economics is to use the net present value (NPV) rule. Here I want to show … Continued
There are two basic, common-sense principles at the heart of finance theory. The first is that risk and return tend to go together, in other words, if somebody offers you an investment which promises to be both low risk and high return there’s probably something wrong with it. And the second … Continued
Real assets are the assets that companies seek to acquire, to build and to invest in. Financial assets are the resources that they raise to allow that to happen. The distinction underpins what we call corporate finance – the financing of corporations. * When economists … Continued
A particular case of asymmetric information is where one person, who we call the principal, wants to get another person, who we call the agent, to do something on their behalf. This situation is known as the principal-agent problem, or more simply … Continued
Asymmetric information is where two people doing business together have different levels of information about something important to the transaction, meaning that one may be able to take advantage of the other. It is very common in economic life. * Information is … Continued
Ahead of teaching corporate finance each year, I like to try to explain what a corporation actually is. * A corporation is a particular way of organising economic activities. What is called a corporation in the US is called a … Continued
Nuclear has a role to play in providing reliable carbon-free electricity, but in the US and Europe it is likely to be too expensive to have more than a small role. * As I have written two books about nuclear … Continued
Debt rating agencies have no particular expertise or special information on sovereign debt, especially for developed economies, so their views don’t matter * News that Fitch downgraded the US sovereign debt rating from AAA (the highest rating) to AA+ (the … Continued
Some people who know me don’t believe it, but as a child I wasn’t interested in international politics. But, like most people in Britain in the 1970s, I knew the name of the Saudi oil minister, because he was a … Continued
Oil and gas companies have few skills that are transferable to electricity generation and risk wasting a lot of their shareholders’ money. * “Peak oil” used to refer to supply but in recent years has come to mean the year … Continued
A global epidemic can seem rather abstract, until someone you know personally is killed by it. Last week Emeritus Professor of Economics at Birmingham University Peter Sinclair died at the age of 73 from COVID-19. I and many other remember … Continued
A crumb of comfort during the 2008/09 financial crisis was the thought that we were living through historic times. But to face another historic event barely a decade later is perhaps a bit much. The financial – macro relationship The … Continued
Being pro-business risks supporting incumbent firms against new entrants – this is not good. * Economists are generally in favour of markets as ways to organise activity. Introductory microeconomics teaches students about how a competitive market brings demand and supply … Continued