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Recovery to accelerate, Capital allocation

Simon Bittlestone, CEO of the Metapraxis shared his thoughts are ticks regarding the successful management of his firm and the ways to tackle the crisis. “The uncertainty thrown up by the COVID-19 pandemic has meant that many businesses have been feeling the strain and extra pressure on their cash flow. While measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) were put in place, for some businesses, these have been ineffective in providing much needed liquidity. This has affected smaller businesses significantly, as they are much more likely to default on loans than their larger counterparts, and therefore less likely to have a loan approved.” He said that the month of April’s survey showed a pessimistic look for the SMEs, which predicted a run out of cash in the coming weeks and taking that into account, there were few other factors to be monitored. The outlook of the business might have changed continuously but it would be naïve to think that they were out of the wood, were his thoughts regarding the next few months’ hold.

The factors influencing business which needs to consider in order to effectively optimize the strategy were, as shared by Mr.Simon, “Financial results depend on how businesses split their capital across different strategies, projects, products or services, as well as various regions. Clearly it would be beneficial to back the most profitable service lines in a time of financial uncertainty, but in order to get this right, businesses need to consider three main points: multiplicity of inputs, complexity of comparison and multiplicity of output.” Multiplicity of inputs is proportional to the assets that can be supported. More the assets more complex is the challenge of coordinating the capital allocation. “To add to this already difficult process, multiplicity of output is going to change dramatically over the coming years, as companies begin to consider other factors such as climate impact, employee wellness and social responsibility as outputs.” He believes that this is the complexity of comparison and which is hard for the board to choose which assets to support.

“Businesses must focus their efforts on financial return. Doing so is a key part of any businesses’ recovery from financial hardship, even if they are caused by unpredictable ‘black swan events’ such as coronavirus.” As many things remained fixed in the short term model, there will be no such thing as creating a whole new product line in the times of recovery and only few businesses have been able to achieve it.  The ability to reach long-term goals very much depends on identifying future risks and changes in the market, and being able to react quickly.

To conclude with the key takeaway for business who are looking to learn from this Covid pandemic, he said, “Capital allocation has always and will always be at the heart of any business’s operations. This is even more prevalent in times of economic recession when managing cashflow becomes even more vital for survival. When a business has a clear historical overview of its portfolio, how well products or services are performing, and how previous scenarios have affected profitability, it can make more informed decisions when it comes to assessing the impact of an unexpected event. The ability to adapt to fluctuations is hugely important to the board, particularly the CFO, when it comes to successful cashflow management. Agility in financial planning, good scenario modelling and prudent assumptions will allow a business to better weather most storms.”

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Finance

Euro zone ministers expect inflation to slow in 2022

The acceleration of euro zone inflation, driven energy prices, is mostly temporary. Then the price growth will slow down again. The euro zone finance ministers agreed that, that too the next year as forecasted by the European Central Bank and the European Commission.

Paschal Donohoe, chaired the talks of the ministers in Luxembourg. In a news conference he said that there was also agreement that the inflation spike was not an argument against the transition to renewable sources of energy. This is under the EU’s ambitious plan of reducing CO2 emissions to zero by the year 2050.

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Finance

Under new rules, borrowing for investment sensible

British finance minister Rishi Sunak said that the government borrowing to fund investment was a sensible thing. This is to allow under new fiscal rules that he is likely to announce, unlike borrowing for day-to-day spending. He said that borrowing for capital investment that is going to drive up their growth is probably a sensible thing for them. And that too particularly in an environment of slightly lower interest rate. Sunak stated this in an event on the sidelines of the annual conference of Britain’s ruling Conservative Party. This event was organized by the Taxpayers’ Alliance advocacy group. Sunak stated in that event, that borrowing for more day-to-day spending is probably less something that you would want to have as part of your framework.

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Finance

IMF board to interview Georgieva-sources

The International Monetary Fund’s executive board is going to interview Managing Director Kristalina Georgieva. This is regarding that; its reviews claims that she pressured World Bank staff to alter data to favor China in her previous role. Board members were initially expected to meet with Georgieva. But spent their time working on other regular business matters.

The board members spent hours for questioning lawyers from the WilmerHale firm. This is about their World Bank investigation report which alleged that Georgieva, as the bank‘s CEO applied undue pressure on staff, to alter data in the flagship “Doing Business” report to benefit China. Then, an IMF spokesperson said that the IMF board remains committed to a thorough, objective, and timely review of the matter. Georgieva has strongly denied the accusations.

The upcoming interviews could prove pivotal in either increasing support for Georgieva. This is with many IMF shareholders are keen to wrap up the board’s deliberations on the matter. The fund’s most influential member governments, including the top shareholder the United States, have withheld public judgment. The World Bank tasked WilmerHale with investigating the “Doing Business” data irregularities identified in 2020. The law firm’s report contends Georgieva. The former World Bank President Jim Yong Kim’s office pressured staff to manipulate data so that the China’s global ranking in the “Doing Business 2018” study of investment climates rose to 78th from 85th.

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