Economic Turmoil: Post-WWI Era and the Great Depression
The World Economy: 1919-1924
Economic Implications of Post-WWI
- Heavy casualties and material losses
- Disarticulation of the economies of losing countries
- Trade war compensations
- Disorganization of the monetary system
Economic Policies After the War
- Lack of cooperation in the early post-war years and protectionist policies
- The Dawes Plan to improve the economy
Economic Growth in the U.S.
- Increased production and cheaper prices
- Economic stagnation in the United Kingdom
- Serious crisis and recovery in Germany by
Understanding Cost of Capital, Working Capital, and Funding Sources
Cost of Capital: An Introduction
Cost of capital is a cut-off rate for allocating capital to investment projects. It represents the rate of return a project must achieve to maintain the market price of the stock.
Importance of Cost of Capital
The cost of capital is crucial in financial management and plays a vital role in several areas:
- Capital Budgeting Decisions: Used for discounting cash flows under the Net Present Value (NPV) method for investment proposals.
- Capital Structure Decisions: Helps in
China’s Economic Landscape: Consumption, Trade, and Negotiations
China’s Economic Overview
Household spending in China accounts for just over one-third of the Chinese output, indicating that China has one of the lowest levels of consumption compared to its production. The Chinese government aims to raise middle-class incomes and is targeting a 7.5% growth rate for this year.
Contrary to some misconceptions:
- The level of consumption of the Chinese is not higher than the British and the Japanese.
- Chinese enterprises do borrow too much money compared with firms in other
Factors Influencing Gross Domestic Product
Elements Affecting GDP
Consumption
An increase in consumption will cause GDP to increase. This means there is an increase in living standards as more people can consume higher levels of goods and services. Income has a positive relation with consumption. An increase of consumption will immediately push up imports. An increase of domestic consumption might decrease exports, since at the same level of production, firms would prefer to sell inside the country.
Investment
GDP increases when businesses invest
Internal Financing: Self-Financing and Its Implications
Internal Financing or Cash Flow
Internal financing refers to the application of financial resources generated within the company itself, without resorting to external funding. Self-financing originates from the company’s profits and is intended for expansion or maintenance of its activities.
Classes of Self-Financing: Maintenance and Enrichment
Maintenance: Consists of retained profits aimed at preserving the company’s economic strength. It is formed through:
- Amortization of tangible and intangible
Key Business Concepts: Return, Value, and Financial Statements
Key Business Concepts
Return
Return is a measure of performance that we get because we apply resources during a period in order to obtain outputs.
- Return of Assets (Economic Analysis): Income before interest/Assets
- Return on Equity (Return for Stockholders): Net income/Equity
Management
Management is a process that includes a plan to make decisions, then implemented by making decisions happen and lastly, you must control and learn about your decision, if it was a good or a bad decision.
Value
Value is the