8 pillars of finance

8 Pillars of Finance

I. The Past does NOT matter

Only the Future has Meaning. Ignore book value…

II. Money has time value

Discount future money using a discount/interest rate

III. Return is proportional to risk

Capital Asset Pricing Model

IV. It doesn’t matter how you slice the cake…

Capital Structure, Dividend Policy don’t matter

V. There is no point in doing what investors can do themselves..

Corporate diversification has no value to the market

VI. You can’t make money on what everybody knows..

Markets are efficient

VII. Insiders know more than outsiders

Dividend policy, capital structure as signals

If you thought…

In your backyard

Raise funds by..

– Internal funds– Rights issue– Debt issue– New equity as a last resort!

– What will be the result of a new issue of equity ?

PILLAR 8

NOBODY KNOWS ANYTHING.. ‘EXPERTS’ LEAST OF ALL!