21 Financial Facts Everyone Must Know IN 2022 | Fun Financial Facts | Read More
Finance broadly describes matters concerning the creation, management as well as study of money, investments, and financial instruments.
There are 4 broad categories of Finance:
- Corporate Finance
- Personal Finance
- Public Finance
- Private Finance
Personal Finance is the application of principles of finance to the decisions pertaining to an individual. This is highly influenced by Behavioural Finance.
Corporate Finance runs a listed corporation with the fundamental aim to maximize shareholders’ value.
Public Finance is the finances of the government that includes revenue, expenditure, and debt.
Private Finance is what helps unlisted companies to raise funds.
Finance is an exciting topic if one stops fearing numbers and starts playing with them. Let us look at 21 fun facts about finance and likes –
ALSO, CHECK – 11 Best Books For Financial Professionals in 2022
21 Financial Facts You Must Know in 2022
Here is the list of mind-blowing truths about finance that most people don’t know about. Let’s Begin.
Fun Financial Facts #1
As one may assume that debt increases financial worries, this is not entirely true. Financial debt is a double-edged sword. While a very high debt in the capital structure of a firm surely increases the financial distress, having no financial debt is also disadvantageous.
This is so because the right amount of debt in the capital structure increases the Return on Equity (ROE) (What is ROE?) of a firm which keeps the shareholders contended.
Fun Financial Facts #2
Share Market is indeed a scary place. However, there is an easy way to reduce risks associated with investing in the share market. If one diversifies the portfolio by dividing the available fund among companies from varying industries instead of investing in one single industry, the unsystematic risk gets reduced to a considerable extent.
Mutual Funds are an easy option for a diversified portfolio. The systematic risk that remains is almost unavoidable.
Fun Financial Facts #3
Organic growth or the growth from own operations is not the only way by which companies grow. There is also an option to choose inorganic growth or the growth not from own operations.
Mergers and Acquisitions are techniques that allow companies to expand by either merging with or acquiring other entities. The target firm may or may not be in a similar industry.
Fun Financial Facts #4
As a common man, one uses the services of Commercial Banks, like the State Bank of India, Union Bank of India, ICICI Bank, Utkarsh Small Finance Bank, etc. It may interest one to know that Commercial Banks represent only one-half of the Banking Industry.
The other half is the Investment Banks which cater to the investment needs of large institutions and not individuals. These banks include Goldman Sachs, JP Morgan, etc.
Fun Financial Facts #5
Stock Price has ‘memory’. This implies that today’s stock price depends on yesterday’s stock price and tomorrow’s stock price depends on today’s stock price.
This goes on until there is a shock that reverses the momentum and then a similar pattern of being dependent on the previous day’s stock price is followed. The stocks, by default, trade at a price band of 20%.
Fun Financial Facts #6
Valuation, a very important tool used in the field of finance, is rather a subjective and biased tool. Valuation is deducing the quantitative value of a company based on the perception of available quantitative and qualitative information (public as well as private).
This perception varies from individual to individual and thus the deduced value varies. This is a major cause of fluctuations in the stock market.
Fun Financial Facts #7
Correlation Asymmetry is a phenomenon that allows Gold to act as a savior during a global crisis. This is called Flight to Quality. Gold has a positive correlation with most asset classes during normal market conditions.
However, in case of a worldwide crisis, Gold ceases to have a positive correlation. Instead, a negative correlation builds up between Gold and other asset classes.
Fun Financial Facts #8
Dark Pools, which are private securities exchanges, are banned in India unlike in the US. Dark Pools are not accessible to the general public.
They allow institutional investors to trade in large volumes without being exposed until the trade is executed. This saves them from adverse prices for trades.
Fun Financial Facts #9
The three financial statements are interlinked with one another. The Net Income from the Profit & Loss Statement (Income Statement) goes straight into the Shareholders’ Equity on the Balance Sheet as well as into the top line item of the Cash Flow Statement.
Changes produced in Balance Sheet items appear in the form of working capital changes on the Cash Flow Statement. Investing Activities and Financing Activities of the Cash Flow Statement affect PPE (Property, Plant & Equipment), Debt, and Shareholders’ Equity of the Balance Sheet.
The Cash and the Shareholders’ Equity on the Balance Sheet are used as plugs. Cash flows in from the final line item of the Cash Flow Statement.
Fun Financial Facts #10
Valuation helps compare apples to oranges. Different companies are priced differently. It is often difficult to contrast firms from a particular industry against firms from another industry. A stock with a price of Rs 1200/- may be cheaper than that costing Rs 1000/-.
It is often not just the stock price that is the deciding factor. A number of qualitative and quantitative factors are involved. This is where valuation, as a tool, plays an important role in the level of the field.
Fun Financial Facts #11
Working Capital, which is the difference between Current Assets and Current Liabilities, may have a positive or a negative value. One may believe that negative working capital is a bad sign. This is not always true.
Whether a negative working capital is a bad sign or not depends on the type of company being considered. Subscription-based companies, like Netflix, Amazon Prime, etc. usually have negative working capital.
Similarly, retail giants like Walmart and likes have a negative working capital which is usually not a bad sign for them.
Fun Financial Facts #12
If given an option to pick only one out of the three financial statements in order to analyze the overall health of the company, the Cash Flow Statement is used as it provides the exact figure of the amount of cash the firm is generating independent of the non-cash expenses.
Cash Flow is the foremost information to be considered when the financial health of a firm is being reviewed.
Fun Financial Facts #13
Valuation is one such financial process that can be used to deduce the value of just anything including a tree! Say, a guava tree. We would follow exactly the same steps as in the case of valuing a company. We may look at the worth of comparable guava trees.
This is called Relative Valuation. Or we may end up considering the cash flows generated by the guava tree. This is called Intrinsic Valuation.
Fun Financial Facts #14
The business model of Investment Banks is purchasing stock directly from the firm and then selling it at a premium. That is how they profit from Initial Public Offerings (IPO). Usually, Investment Banks purchase all of the shares that the company offers to the general public.
As a result, if there is insufficient demand for the shares, the investment bank, rather than the issuing firm, will hold the remaining stock.
Fun Financial Facts #15
A derivative, or a financial contract whose value depends on the underlying security, helps stock market investors to mitigate associated risks. This is known as Hedging which is used to limit losses in the share market. However, this mechanism also limits the profit.
The main purpose of using derivatives is to reduce risks associated with investing in share markets.
Fun Financial Facts #16
Credit ratings help determine the risk of default or the Credit Risk. Lower the rating higher will be the risk of default and therefore higher is the demanded rate of interest. Generally, the government bonds of a country are considered to be the safest investment in that particular country.
They usually have the highest credit ratings. However, no investment is truly or completely risk-free. Treasury Bonds or the US Government Bonds are said to be the most risk-free bonds in the world.
Fun Financial Facts #17
Investments in share markets is undoubtedly a hectic task involving a number of calculations and analysis. However, there is one method of investing in share markets that is far less complex. This is called Passive Investment.
This most often involves index investment or investing in market index stocks. This is easier as well as cheaper than Active Investment.
Fun Financial Facts #18
Alternative Investments are another category of investments that are beyond traditional investments. These involve Private Equity, Hedge Funds, Real Estate, Commodities, etc. Of late, they are becoming more and more available to more and more investors thereby becoming an important part of the investment landscape.
Alternative Investments have greater portfolio diversification with lower risks and higher returns potential to offer.
Fun Financial Facts #19
As many people would believe otherwise, Insurance is not an investment. Insurance is simply a method to manage risks.
Buying insurance is purchasing protection against expected or unexpected financial risks and losses. Insurance is a policy or contract or legal agreement which provides an insured with reimbursement from an insurer (generally an insurance company).
Fun Financial Facts #20
Apart from Financial Accounting, there is also Managerial Accounting the purpose of which is to provide relevant financial information to decision-makers within an organization.
They are not accessible to external stakeholders such as creditors of the firm and are strictly meant for internal purposes such as budgeting.
Perhaps this is why Managerial Accounting does not have well-defined international standards, unlike Financial Accounting which follows US GAAP Framework. The framework for Managerial Accounting varies from one organization to another.
Fun Financial Facts #21
Synergy is a widely used term in the context of mergers and acquisitions to evaluate deals. This is used to determine the numbers of the end result of a merger or an acquisition. It is based on this expected synergy that the deal is taken forward.
However, in the rarest of rare cases, this expected synergy turns into a reality. In most deals, the actual synergy is much lower than what was expected and the deal results in a failure.
Typically, most deals of mergers and acquisitions are a failure today.
Concluding 21 Fun Financial Facts
Finance is a field that can be the most fun to deal with if dealt with in the right way. It is all about numbers and figures. Financial Literacy goes a long way in enabling people to provide for their future especially when it comes to Personal Finance decisions.
With the introduction of newer and more complex financial products, it becomes all the more important to have at least a basic understanding of these concepts of finance. The bottom line is that if one master’s financial literacy, life becomes tremendously easy.
With this, we conclude the topic of Fun Financial Facts Everyone Must Know In 2022.
Hailing from the holy city of Varanasi, Shivansh, a travel junkie, is an MBA in Finance from the Indian Institute of Management. He owns a light-hearted YouTube channel called ‘Life of an IIMite’ and also has an English Grammar course running on Udemy. A foodie and a fitness freak at the same time, Shivansh has been passionate about writing since his teens & took up freelancing soon after. Let’s Connect,