FM Questions:

Financial decisions topics: (Capital budgeting, Capital Structuring & Dividends decisions made in Puma
Energy)

Capital Expenditure Questions:

1) How are capital budget set? What limits/constraints apply? Do they vary from year to year?
Capital Budgets are set based on estimated forecast / budgets spend for various capital
expenditures (i.e. Computer equipment to be replaced or new, furniture & fixtures, servers etc).
Some of these expenses can be discretionary depending upon operating company’s profitability
and overall health. The Budgets definitely vary YOY basis the overall outlook of the company (3-
5 year plans), estimated profits, replacement of technology, etc
2) What procedures are used to develop and validate investment proposals?
Management/Leadership team is briefed by the CFO/FD on various proposals that are potential
viable / feasible in the current year or years to come. Depending upon how much needs to be
invested, their pay-out period / IRR etc, the proper due diligence needs to be done. This
diligence depending upon the investment $ could be done in-house or externally through
consulting companies
3) What economic criteria are applied in investment decisions?
Pay-out period, NPV and IRR
4) How is discount rate determined? How is project risk priced?
Discount rate is the rate of return that is used in the Discounted cash flow (DCF) analysis to
determine the present value of the future cash flows. Discount rate refers to the rate that is
charged to banks/FI by Fed/Reserve/central banks on their loans. Discount rate refers to the
interest rate used in DCF
5) How are nondiscretionary /no income producing projects approved?
Some spends are ear-marked on a yearly budget as Investments. All pro-bono work has to be
approved by the Leadership/Management team
6) Does financing pays any role in investment decision?
Without a doubt, it’s a very significant decision. Plus, the source of financing type – equity or
debt is another vital factor that will weigh to prove a project is feasible in terms of moving
ahead
7) Are investments post audited?
All investments post their incurrence should be audited / verified to their original plan/budget
to see what worked vs not. Circumstantial and actual evidence and its revelation helps to make
better future decisions
8) Are acquisition treated differently? What motivates them?
Acquisitions are always different from small/medium purchases. Acquisitions is certainly a drain
on company cash flows but also capable of giving it a huge edge in terms of market share which
otherwise would not be possible organically. With the times we live in, technology itself is
becoming redundant so fast, that acquisitions seems the right way to go and lead if someone
aspires to be a market leader.
9) How are assets sales evaluated?
 Depending upon the type of asset, it’s value would have to be evaluated either at cost or market
value. For example – marketable securities like stocks/options at market value, intangible assets
(patents/trademarks) at cost (as reflected in the Balance-sheet)

Financing Questions:

1) What criteria is used in sourcing finance?

Time period, ownership/control and finance source itself
2) Does the firm have direct gearing level? Why?
Each company according to its financial risk capability would have a gearing ratio. Total
Liabilities/Total assets would give a gearing ratio (debt ratio)
3) When is external finance sought?
In pursuit of Growth (to broaden the offering, grow the workforce or expand overseas), preserve
internal resources and see what is available outside and get an outside perspective
4) How is the choice made between debt and equity?
Clearly the decision is very specific to each and every business. And most of the companies
could be using the mixed model. However, there are some factors to be considered before
reaching out to debt/equity financing namely – long term goals, available interest rates, need
for control, borrowing requirements, current business structure, future repayment terms and
access to equity markets
5) What is the preferred method of raising equity?
6) What is preferred source of debt?
7) How is advice on funding strategies obtained?
8) What if any link is there to investing?
9) Is rating or market concerns an issue?
10) How is leasing evaluated?

Payout Policy Questions:

1) How is dividend set?

2) Are stable dividend is desirable? Is payout ratio fixed?
3) Are special dividends considered?
4) Can shareholders reinvest dividends? Why /Why not?
5) What drives the decision on a share buyback?

Corporate Structure Questions:

1) Does the firm have target size?

2) What derives the business unit (BU) mix?
3) Are Bus Integrated for financial decision making?
4) Do investor preferences drive decisions on structure?

Governance System Questions:

1) How are managerial biases addressed?

2) What influence come from executives compensations?
3) Does the Board operate efficiently?
4) Does the board add value to corporate finance decisions?
Ethics and Values Questions:

1) Do ethics or values (Corporate social responsibility, SRI) impact corporate finance decisions?

Risk Management Questions:

1) How is insurance evaluated?

2) Is self-insurance sees an option? Where?
3) What is your definition of risk?
4) What is firm’s risk propensity?
5) How is risk managed?

General Questions:

1) What is the principle objective behind corporate finance decision? Profit, risk reduction?
2) Are business or other cycles important?
3) Are corporate finance decisions paced? How?
4) What influence does stock price have on corporate finance decisions?
5) What non-financial factors affect decisions? E.g. nature of income or expenditure; Competitors;
analysts
6) What influence do clienteles – such as shareholders, especially institutions have?