The Optimism of Corporate Finance Corporations enjoyed more than a decade of limitless optimism where finance is concerned. Without warning in September 2008, the first signs of flaws in that optimism appeared. Financial industries lost their sense of equilibrium and over-speculated on high risk investments and corporate transactions. The ripple effect was a devastating and lingering recession extended to corporations in virtually every industry. The old truism, "What goes up, must come down" shook foundations of corporate finance to its deepest roots. Change or Evolution for Finance? Astute business people know industry always has ups and downs. The difficulty experienced presently is a stubborn willfulness to ignore fundamental principles of economics. In January 2009, the US government, in an attempt to stop the financial bleeding in corporations, presented a comprehensive plan of finance reform. To understand why this was needed demands a look at how businesses were transacting business. Many corporations confused "finance" with "revenue" and "profit" to the extent that a muddled soup of business operatives lost sight of financial balance and stability. This was replaced by lightning speed investing and fast cash mentalities with expectations of instant return on investment. These practices reduced "business" to levels of turnkey corporations with more exit doors than entrances. What remains today is an arduous evolution of business operations monitored more heavily to avoid another financial meltdown and over-speculation. When Corporations Become Blind to Common Sense Initiatives In corporate haste to increase profits, major initiatives based on sound financial practices were ignored. This, in essence, is the basis of the cause of the stubborn, stagnating recession. The problem in certain corporations was inability to adhere to pragmatic business practices. With the abundance of profit enjoyed through two decades, corporations expected growth and profits to continue indefinitely. Yet, they ignore their associations and heavy bonds to global markets that could, at any time, impact growth and profits. This can be viewed as "profit without protection." Corporations seem blind to common sense initiatives that protect their profits. Engorgement of the expectation of limitless profit results in total breakdown of protection of corporate revenues and by association, corporate finances. Accepting Change and Financial Evolution While financial optimism has its place, a healthy, constructive antagonism is one venue to protect corporate profit. Change occurred with a Financial Meltdown in 2008. Yet, it is already seen that taxpayer bailouts have not managed to motivate corporations into actions that indicate an acceptance of change. Rather than go with the flow, corporations desire a return to their overly optimistic days of financial free fall. CL King provides investment banking, equity research, sales and trading, and investor services to corporations and institutions. CL King’s Corporate Services unit offers specialized services and objective advice to help corporate clients achieve flawless execution directly in the capital markets.
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