By CA Prof. Kirti Sharma
The global economy is undergoing turbulence owing to the geopolitical crisis in the east and west. Growth has slowed down across major economies, energy-price inflation has been surging. This has had far reaching impact especially as global trade got impacted with an adverse bearing on the supply of essential commodities, most importantly, the oil. The energy-price inflation has impacted cost of production, cost of transportation and overall profitability.
Financial management decisions emanate from four major activities being operating, investing, financing and dividend. Each of these witnessed differing trends in the dynamic global market.
Digital transformation, big data, AI and ML have created plethora of new products which were not heard of before. These products can be quickly launched, are more efficient and have a positive impact on the bottom line. Cryptocurrency, blockchain, crowdfunding are being used to mobilise/raise funds. As ease of borrowing and speed of borrowing have improved via digital platforms, borrowing cost for companies has partially reduced. It is obvious, many companies want to avoid the conventional funding route and experiment the new ones. There has been a growth in ICOs for fund raising which are not as regulated as equity market but are faster to raise and a substitute for equity for new ventures.
Since cash flows dwindled due to reducing sales, creating niche segments to improve the bottom line was essential. Vendor audits have become a popular practice as businesses want to ensure that suppliers and buyers are reliable and meet their quality standards. AI driven Inventory models are gaining popularity. Since inventory is a major component for manufacturing companies, managing them has a direct impact on the production cost, improving the operating profits.
With emphasis on sustainability, green finance and ESG companies are growing. Businesses want to invest in projects which are ‘ecological-friendly’ hence get tax benefits to pursue this initiative. Recording carbon footprints lies in the nucleus of making investment decisions. More so as many countries have imposed a carbon tax which impacts businesses’ cost directly.
Triple bottom line is the new metric to measure performance. It is just not profit which is important but environmentally conscious profit which ought to be measured. The DEI framework is being implemented by companies which has ramifications on the operating decisions. Such entities are symbolized as socially conscious entities. Deliberated growth of human capital is necessitated.
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A predominant objective for all these practices is to maximize shareholders’ wealth by enhancing market value. For valuation it is important that tangible and intangible assets are gauged. Intellectual Property Rights, Proprietary rights, innovation capital etc. are important assets for the businesses in the global ecosystem. This coupled with a robust IT system to secure data and counter cybersecurity is a vital investing decision which CTOs and CFOs should make. To be successful, businesses need to be a lot more agile and sprightly.
The author of the article is Associate Professor – Accounting & Finance, Great Lakes Institute of Management, Gurgaon.
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