Illiquidity, Solvency & Insolvency : A Link to Bankruptcy Procedures

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Snehasish CHINARA In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2025) delves into the illiquidity, solvency and insolvency, key concepts in that connect financial distress and bankruptcy procedures.

Illiquidity

Illiquidity refers to the inability of a company or individual to convert assets into cash quickly enough to meet short-term financial obligations as they come due. This condition arises from a mismatch in the timing of cash inflows and outflows rather than a fundamental deficiency in overall financial health. For instance, a firm might hold substantial non-liquid assets (e.g., accounts receivable or inventory) that are valuable but not immediately accessible for use in settling debts. Illiquidity is generally viewed as a short-term liquidity risk and is often addressed through measures such as enhanced cash flow management, securing bridge financing, or leveraging credit facilities.

Solvency and Insolvency

Solvency refers to the financial health of an entity, where its assets exceed its liabilities, and it can meet its financial obligations as they fall due (although not in the short term as explained below). A solvent entity demonstrates financial stability and sustainability, which are key factors for stakeholders, such as debt holders (for liquidity reasons at the time debt deadlines) and especially equity holders (for performance reason).

Conversely, insolvency is a financial condition in which an entity’s liabilities exceed its assets, or it is unable to meet its debt obligations as they become due. It represents a state of long-term financial distress, indicating that the entity lacks sufficient resources to satisfy its obligations, even with adequate time to manage cash flows.

Insolvency can manifest in two primary forms:

  • Balance Sheet Insolvency: Occurs when the total liabilities of a company exceed its total assets. This is typically assessed using the entity’s balance sheet, where negative equity (assets minus liabilities) signals insolvency.

  • Cash Flow Insolvency: Occurs when an entity cannot pay its debts as they fall due, despite potentially having assets that exceed liabilities. This happens when illiquid assets cannot be quickly converted to cash to meet immediate obligations.

Insolvency is distinct from illiquidity in that it reflects a fundamental imbalance in financial health rather than a short-term cash flow issue. Prolonged insolvency often leads to bankruptcy filings, where legal proceedings determine whether the business should be restructured or liquidated.

Valuation Perspective: Solvency and Insolvency via Net Present Value (NPV)

Formula for Net Present Value (NPV)

The Net Present Value (NPV) is calculated using the following formula:

Figure 1. Net Present Value (NPV) Formula

In this context, cash flows represent the value generated by the firm’s assets, while the discount rate reflects the required return on debt and equity financing. A positive NPV signifies that the firm or project creates value above its cost of capital, while a negative NPV indicates value destruction and financial risk.

From a valuation standpoint, Net Present Value (NPV) is a crucial metric that aligns with the solvency status of an entity. NPV evaluates the difference between the present value of cash inflows and the present value of cash outflows over a given period. It serves as an indicator of the financial viability of a firm or project.

Solvent Firms: NPV > 0

  • A positive NPV indicates that the firm or project is generating value in excess of the required rate of return.

  • Such firms are financially sustainable, with the potential to attract investments, repay debts, and grow operations.

  • Example: A profitable company with strong operational cash flows and prudent capital investments will exhibit a positive NPV.

Insolvent Firms: NPV < 0

  • A negative NPV signals that the firm or project is destroying value, as cash outflows exceed the discounted cash inflows.

  • These firms struggle to generate sufficient returns, often resulting in financial distress and eventual insolvency.

  • Example: A company burdened by declining revenues, rising costs, and high-interest obligations may show a negative NPV.

Bankruptcy Basics

Bankruptcy is a legal framework that helps individuals and businesses unable to meet their financial obligations in the short term. When a company files for bankruptcy, it either seeks to reorganize its debts and operations or liquidate its assets to repay creditors, depending on the type of bankruptcy pursued (Chapter 7 for liquidation or Chapter 11 for reorganization procedures in US bankruptcy law). Reorganisation can offer a pathway to stability, enabling companies to mitigate debt burdens, restructure, and potentially preserve jobs. In this post I explain the link between the two academic concepts of illiquidity and insolvency and the two paths of bankruptcy of liquidation and reorganization.

Liquidation (Chapter 7 Bankruptcy)

Liquidation, often governed by specific bankruptcy codes such as Chapter 7 in the U.S., involves the complete dissolution of a financially distressed entity. Under this process, the firm’s assets are sold off to repay creditors in a legally prioritized manner. Liquidation is typically the final recourse for insolvent entities that lack the ability to restructure or continue operations. It marks the end of the entity’s existence, with any remaining proceeds distributed to stakeholders after settling liabilities.

Figure 2. Number of Chapter 7 Bankruptcy Filings (2013-2022)

Source: computation by the author (data: US Courts Statistics).

Reorganization (Chapter 11 Bankruptcy)

Reorganization, outlined under codes such as Chapter 11 in the U.S., is designed for insolvent entities seeking to restructure their debts and operations while continuing business activities. This process allows the firm to negotiate with creditors to modify repayment terms, reduce debt burdens, or inject fresh capital. Reorganization aims to restore financial stability, preserving the firm’s value and jobs while maximizing recoveries for creditors. It is a more sustainable alternative to liquidation for viable but financially distressed firms.

Figure 3. Number of Chapter 11 Bankruptcy Filings (2013-2022)

Source: computation by the author (data: US Courts Statistics).

Link between Illiquidity, Solvency, and Bankruptcy Outcomes

The determination of whether an illiquid firm should undergo liquidation or reorganization is heavily influenced by its solvency or insolvency status. These financial characteristics provide a structured framework to allocate resources and protect stakeholder interests, ensuring an efficient resolution process that minimizes economic disruption.

Illiquidity and Insolvent Companies: Liquidation

A firm that is both illiquid (unable to meet its short-term obligations) and insolvent (its liabilities exceed its assets) is in a critical financial position. These firms lack the operational capacity to generate sufficient cash flows and the balance sheet strength to cover their obligations. By selling off assets, the firm can repay creditors in an orderly and legally prioritized manner, thereby closing its operations permanently. Liquidation minimizes further losses and provides a clear exit for stakeholders, ensuring that remaining value is distributed equitably.

From a financial perspective:

  • Asset Realization: Liquidation involves selling the firm’s assets, converting illiquid assets (e.g., inventory, real estate) into cash to settle liabilities.

  • Creditor Recovery: Creditors are repaid in a hierarchical order—secured creditors (e.g., bondholders) take precedence, followed by unsecured creditors and equity holders.

  • Economic Efficiency: Liquidation prevents further erosion of value by discontinuing loss-making operations. The proceeds can be redeployed to more productive uses within the economy.

Example: In high-leverage industries such as retail, where asset values may plummet during financial distress, liquidation can be a pragmatic approach to salvaging any remaining value for stakeholders.

Illiquidity and Solvent Companies: Reorganization

Firms that are illiquid (unable to meet its short-term obligations) but remain solvent (its assets exceed its liabilities) present a different scenario. These companies face temporary liquidity constraints but possess the potential for recovery, given their fundamentally sound financial or economic position. By restructuring debts and operations under judicial supervision, reorganization allows the firm to stabilize its finances, regain liquidity, and continue its business activities. This approach helps preserve jobs, maintain operational continuity, and often results in better recovery for creditors compared to liquidation.

Key financial points include:

  • Debt Restructuring: The firm negotiates with creditors to extend repayment timelines, reduce interest rates, or convert debt into equity, improving short-term liquidity.

  • Operational Optimization: Reorganization often involves strategic cost-cutting, asset divestitures, or operational restructuring to enhance cash flow generation.

  • Stakeholder Value Preservation: By avoiding liquidation, reorganization preserves enterprise value, ensuring better recovery for creditors and protecting equity holders’ stakes.

  • Long-term Viability: Reorganized firms can often leverage their existing assets and market position to regain profitability, benefiting employees, suppliers, and customers.

Example: Airlines facing temporary cash flow issues during economic downturns often turn to reorganization. By negotiating with lessors, restructuring debt, and optimizing operations, they can avoid liquidation and return to profitability.

An Efficient Bankruptcy Procedure

An efficient bankruptcy procedure should distinguish between these two cases (solvent and insolvent firms), leading illiquid and insolvent firms into liquidation and illiquid but solvent firms into reorganization. This tailored approach ensures that:

  • Insolvent firms with no viable future are dissolved efficiently, maximizing recoveries for creditors.

  • Solvent but illiquid firms are given a second chance to reorganize and emerge stronger, preserving value for all stakeholders.

Figure 4. Efficient Bankruptcy Procedure

Such a system not only protects creditors and investors but also fosters economic stability by maintaining productive assets and employment where possible, while swiftly resolving entities that no longer contribute to the economy.

This approach not only maximizes financial efficiency but also aligns with broader economic objectives:

  • Maximizing Creditor Recovery: Insolvent firms should be liquidated to repay creditors as much as possible, avoiding the dilution of recovery through prolonged unviable operations.

  • Optimizing Economic Resources: Solvent but illiquid firms should undergo reorganization, preserving their workforce, intellectual property, and market position, which might otherwise be lost in liquidation.

  • Minimizing Systemic Risk: A clear distinction between liquidation and reorganization reduces uncertainty in financial markets, particularly for industries prone to cyclical liquidity crises.

Why Should I Be Interested in This Post?

This post serves as a comprehensive guide to understanding the critical financial concepts of illiquidity, solvency, and insolvency, while connecting them to practical applications in bankruptcy procedures. Whether you’re a finance student, a professional exploring corporate restructuring, or simply curious about the mechanisms behind bankruptcy codes, this article bridges theoretical knowledge with real-world implications.

By explaining the nuanced relationship between illiquidity and solvency/insolvency, and their impact on choosing between liquidation and reorganization, it offers insights into how firms navigate financial distress. Furthermore, it highlights how an ideal bankruptcy procedure aligns with maximizing economic value and minimizing systemic risks.

Related posts on the SimTrade blog

   ▶ Snehasish CHINARA Chapter 7 vs Chapter 11 Bankruptcies: Insights on the Distinction between Liquidations & Reorganisations

   ▶ Snehasish CHINARA Chapter 7 Bankruptcies: A Strategic Insight on Liquidations

   ▶ Snehasish CHINARA Chapter 11 Bankruptcies: A Strategic Insight on Reorganisations

   ▶ Akshit GUPTA The bankruptcy of Lehman Brothers (2008)

   ▶ Akshit GUPTA The bankruptcy of the Barings Bank (1996)

   ▶ Anant JAIN Understanding Debt Ratio & Its Impact On Company Valuation

Useful resources

US Courts Data – Bankruptcy

S&P Global – Bankruptcy Stats

Statista – Bankruptcy data

About the author

The article was written in January 2025 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2025).

Chapter 11 Bankruptcies: A Strategic Insight on Reorganisations 

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Snehasish CHINARA In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2025) explores the complexities of Chapter 11 bankruptcy laws in the United States, examining how this legal process impacts businesses facing financial distress. With insights into reorganisation (Chapter 11), this post provides a detailed overview of this chapter’s purpose, process, and strategic implications. By examining the purpose, procedures, and strategic implications of Chapter 11, this post sheds light on how firms navigate debt management and financial recovery.

Bankruptcy Basics

Bankruptcy is often perceived as a last resort for struggling businesses, a measure taken when all other avenues for debt resolution have been exhausted. However, for businesses of all sizes, understanding bankruptcy is crucial—not only as a potential safeguard but as a strategic consideration in financial planning and risk management. This knowledge becomes increasingly important in today’s volatile global economy, where the financial resilience of a business can determine its survival and growth.

Bankruptcy is a legal framework that helps individuals and businesses unable to meet their financial obligations. When a company files for bankruptcy, it either seeks to reorganize its debts and operations or liquidate its assets to repay creditors, depending on the type of bankruptcy pursued (Chapter 7 or Chapter 11 procedures in US bankruptcy law). Bankruptcy can offer a pathway to stability, enabling companies to mitigate debt burdens, restructure, and potentially preserve jobs.

Figure 1. Number of Chapter 11 Bankruptcy Filings (2013-2022)

Source: computation by the author (data: US Courts Statistics).

Legal Definition and Purpose of Chapter 11 Bankruptcy

Chapter 11 bankruptcy, commonly known as “reorganisation bankruptcy,” is a legal mechanism under Title 11 of the United States Code that allows financially distressed businesses to restructure their debts and operations while continuing to function. Unlike Chapter 7, which focuses on liquidation, Chapter 11 aims to preserve the business as a going concern, enabling it to regain profitability while protecting creditors’ interests.

Legal Definition: Chapter 11 provides a structured process through which a debtor proposes a reorganisation plan to address its financial obligations. This plan may involve renegotiating debt terms, selling non-core assets, downsizing operations, or finding new investment capital. The reorganisation plan must be approved by the bankruptcy court and often requires agreement from creditors, ensuring fairness and feasibility.

Purpose: The primary objective of Chapter 11 is to balance two critical goals:

  • Business Rehabilitation: By allowing the debtor to restructure debts rather than liquidate, Chapter 11 ensures that valuable business operations, jobs, and economic contributions are preserved. This is particularly vital for companies with potential long-term viability but temporary financial challenges.

  • Creditor Protection: The process safeguards creditor interests by ensuring orderly repayment according to a court-approved priority structure. Secured creditors typically recover from collateral-backed assets, while unsecured creditors negotiate for partial repayment through the reorganisation plan.

Chapter 11 is especially beneficial for medium-to-large corporations that need significant operational restructuring or whose debt structure requires complex renegotiation. The process is overseen by a debtor-in-possession (DIP), meaning the company’s existing management continues to operate the business under court supervision while implementing the reorganization plan. The court’s role ensures transparency, equity, and adherence to legal requirements, protecting all stakeholders throughout the process.

Chapter 11 enables businesses to restructure their debt obligations and operations without halting business activities. This process can offer significant advantages, especially for companies with strong core operations but temporary cash flow or liquidity issues. In 2023, approximately 25% of business bankruptcies filed in the U.S. were Chapter 11 cases, showing its popularity among companies aiming to reorganize rather than liquidate.

Key Objectives of Chapter 11

  • Debt Relief: Restructure and reduce debt obligations to improve cash flow.

  • Operational Reorganization: Adjust operations to align better with financial health, often through cost-cutting, downsizing, or strategic pivots.

  • Business Continuity: Unlike Chapter 7, Chapter 11 allows businesses to continue operations, retain jobs, and maintain relationships with customers and suppliers.

Eligibility and Who Can File:

  • Chapter 11 is primarily available to corporations, partnerships, and sole proprietorships. However, it is most commonly used by medium to large businesses that have a chance to recover.

  • For individuals, Chapter 11 is an option if they exceed the debt limits set for Chapter 13, though it is rare in personal bankruptcies due to its complexity and cost.

Common Causes of Business Bankruptcy

Chapter 11 bankruptcy is often a lifeline for businesses facing financial distress but with the potential for recovery through reorganizsation. Unlike Chapter 7, which involves liquidation, Chapter 11 allows companies to address their challenges by restructuring debts and operations. Several factors commonly drive businesses into Chapter 11 bankruptcy, reflecting a combination of internal inefficiencies and external pressures.

One major cause is an excessive debt burden, where businesses accumulate unsustainable liabilities relative to their income. This can become unmanageable during revenue declines or rising interest rates. Similarly, declining revenues caused by market shifts, competition, or external shocks often leave businesses unable to meet financial obligations. Economic downturns and external crises like recessions or global pandemics further exacerbate financial distress. In addition to economic pressures, overexpansion is another common issue. Businesses that grow too quickly without sufficient financial planning can overextend resources. Operational challenges such as inefficiencies or failure to innovate are also critical factors. Companies that fail to adapt to changing markets risk becoming obsolete. Additionally, supply chain disruptions, such as delays or rising costs, can disrupt operations, especially for businesses reliant on just-in-time systems. These issues can significantly strain cash flow and increase financial pressure.

Legal challenges often play a role in driving Chapter 11 filings as well. Large settlements, lawsuits, or regulatory fines can create sudden financial burdens that businesses struggle to manage. Cash flow management is another critical issue. Poor working capital planning can leave businesses unable to cover short-term obligations. Retailers with seasonal sales spikes often struggle during off-peak periods, leading to financial distress. Finally, industry disruption caused by technological advancements or shifting consumer preferences can force businesses into bankruptcy.

Businesses typically face bankruptcy due to a mix of internal and external factors. Key factors include:

  • Excessive Debt Burden

    Cause: High levels of debt relative to income can leave businesses unable to service loans, especially during periods of declining revenue or rising interest rates.

    Example: Hertz Corporation filed for Chapter 11 in 2020 with over $5 billion in debt. The pandemic-driven collapse in travel demand exacerbated its inability to meet financial obligations.

  • Declining Revenues

    Cause: Sustained revenue declines due to market changes, competition, or external shocks can reduce a company’s ability to cover operating expenses and debt repayments.

    Example: American Airlines filed for Chapter 11 in 2011 due to declining revenues from rising fuel costs and competition, using the process to restructure its debt and cut costs.

  • Economic Downturns and External Crises

    Cause: Recessions, global crises, or industry-specific downturns can severely impact revenues and cash flow, driving businesses into insolvency.

    Example: The COVID-19 pandemic led to a wave of Chapter 11 filings in 2020, including companies like JC Penney and Neiman Marcus, which faced plummeting consumer demand during lockdowns.

  • Overexpansion

    Cause: Rapid growth without adequate financial controls or market analysis can stretch resources and leave businesses vulnerable to cash flow problems.

    Example: Sbarro, a pizza chain, filed for Chapter 11 in 2011 and again in 2014 after overexpanding into underperforming locations, resulting in significant operational inefficiencies.

  • Operational Inefficiencies

    Cause: Ineffective cost management, outdated business models, or failure to innovate can erode profitability, making it difficult to sustain operations.

    Example: Kodak filed for Chapter 11 in 2012 due to its inability to adapt to the digital revolution, which rendered its traditional film business obsolete.

  • Supply Chain Disruptions

    Cause: Delays, shortages, or rising costs in supply chains can disrupt production and increase operating expenses, especially for companies dependent on just-in-time systems.

    Example: In 2022, many small-to-medium-sized manufacturers in industries like electronics and automotive struggled with supply chain issues, driving some to seek Chapter 11 protection.

  • Legal Liabilities

    Cause: Large settlements, regulatory fines, or lawsuits can create significant financial burdens that businesses cannot manage without restructuring.

    Example: Purdue Pharma filed for Chapter 11 in 2019 as part of a settlement to resolve thousands of lawsuits related to the opioid crisis.

  • Poor Cash Flow Management

    Cause: Failure to manage working capital effectively can lead to cash shortages, making it difficult to pay creditors or fund day-to-day operations.

    Example: A mid-sized retailer with strong seasonal sales but poor cash flow planning might file for Chapter 11 to restructure its payment obligations during off-peak periods.

  • High Fixed Costs

    Cause: Businesses with significant fixed costs, such as long-term leases or equipment financing, face challenges when revenues fall, as these costs cannot easily be reduced.

    Example: JC Penney faced mounting lease expenses and declining store traffic, ultimately filing for Chapter 11 in 2020 to renegotiate terms and restructure operations.

  • Industry Disruption

    Cause: Technological innovation, shifting consumer preferences, or the entrance of disruptive competitors can weaken traditional business models.

    Example: Blockbuster filed for Chapter 11 after streaming services like Netflix and Hulu fundamentally disrupted the home entertainment industry.

Key Steps in a Chapter 11 Filing

  • Filing the Petition and Automatic Stay

    • Filing: The Chapter 11 process begins when the debtor files a petition in bankruptcy court. This petition includes comprehensive details about the company’s financial status, such as assets, liabilities, income, expenses, and financial history.

    • Automatic Stay: The moment the petition is filed, an automatic stay takes effect, immediately halting all collection actions by creditors. This stay provides the company with breathing room to reorganize without the threat of foreclosure or asset seizure. The automatic stay is crucial for companies in Chapter 11, as it allows operations to continue while management restructures.

  • Development and Approval of the Reorganization Plan

    • Plan Development: The debtor, acting as a “debtor-in-possession” (DIP), typically retains control over business operations. The company is tasked with drafting a reorganization plan, which outlines how it will repay creditors, restructure operations, and achieve profitability.

    • Creditor Negotiations: The company works with creditors to gain their support for the reorganization plan. In most cases, the plan must be approved by at least one class of impaired creditors (those not expected to be fully repaid). This approval can involve debt rescheduling, asset sales, or reductions in debt.

    • Court Approval: Once creditors approve the plan, the bankruptcy court must confirm it. The court assesses whether the plan is feasible, fair, and in the best interests of creditors. This phase can be complex and costly, as it often requires multiple hearings and potential modifications to satisfy all parties.

  • Execution and Emergence from Bankruptcy

    • Implementation: After court approval, the company begins implementing the reorganization plan, following all terms outlined to repay creditors over time. Changes may include asset sales, layoffs, new debt issuance, or equity restructuring.

    • Emergence from Chapter 11: Once the company fulfils the terms of the reorganization plan, it officially exits Chapter 11. This process can take several months to years, depending on the company’s complexity and debt structure. For instance, American Airlines emerged from Chapter 11 after two years of restructuring, merging with US Airways to enhance market competitiveness.

Benefits of Restructuring vs. Liquidation

  • Preserving Business Value: Reorganization allows the company to maintain operations, preserving its market presence, assets, and workforce. For example, Hertz used Chapter 11 in 2020 to restructure over $5 billion in debt, allowing it to continue operating and ultimately emerge stronger after the pandemic.

  • Maximizing Creditor Recoveries: Creditors are often more willing to negotiate in Chapter 11, as reorganization usually yields better recoveries than liquidation. According to research, Chapter 11 cases result in creditor recoveries averaging 20-25% higher than Chapter 7 cases due to continued asset generation.

  • Opportunity for Operational Efficiency: Companies can use Chapter 11 to optimize operations by renegotiating leases, reducing payroll, and streamlining production. These changes help improve financial health and long-term viability.

Risks and Challenges in the Reorganization Process

  • Cost and Complexity: Chapter 11 can be extremely costly, especially for larger businesses. Legal fees, administrative expenses, and consulting costs can run into millions. A 2019 study revealed that legal and administrative expenses for large Chapter 11 cases average between $1 million and $10 million. For example, Lehman Brothers’ bankruptcy case, the largest in U.S. history, accrued $2.2 billion in fees over its restructuring period.

  • Extended Time Frame: Chapter 11 cases can be lengthy, taking months or even years to complete. This time commitment may strain cash flow and delay recovery, particularly if the business is in a highly competitive industry. In Hertz’s case, the Chapter 11 process lasted 17 months, and the company only emerged after securing additional financing and renegotiating debt terms.

  • Uncertainty in Creditor Approval: Creditors must approve the reorganization plan, which can be challenging if there are conflicting interests among different creditor classes. If major creditor groups reject the plan, the court can enforce a “cramdown,” but this is often a contentious and uncertain process.

  • Risk of Conversion to Chapter 7: If a reorganization plan fails, or the business cannot achieve sustainable operations, the case may be converted to Chapter 7, leading to liquidation. This outcome results in further losses for stakeholders, as assets are sold off, and the business ceases operations.

Debtor-in-Possession (DIP) Financing: Definition, Purpose, and Relevance in Chapter 11 Filings

Debtor-in-Possession (DIP) financing is a specialized form of funding that allows businesses undergoing Chapter 11 bankruptcy to secure the liquidity needed to continue operations during the reorganization process. The term “debtor-in-possession” refers to the debtor retaining control of its assets and operations while the bankruptcy case is under court supervision. Unlike standard loans, DIP financing is uniquely designed for companies in financial distress and requires court approval to ensure fairness and transparency.

Definition and Features

DIP financing is a post-petition loan that takes precedence over most existing debts, including secured loans, under U.S. bankruptcy law. This super-priority status ensures that DIP lenders are repaid before pre-petition creditors, making the financing attractive even for lenders dealing with financially distressed companies. The terms of DIP financing often include strict covenants, requiring the debtor to adhere to the reorganization plan and meet operational milestones.

Purpose of DIP Financing.

The primary purpose of DIP financing is to provide businesses with the liquidity needed to continue essential operations during the reorganization process. This includes paying employees, suppliers, and other operating expenses. Without this funding, many companies would face operational paralysis, undermining the feasibility of reorganization.

  • Maintain Operations: Fund day-to-day activities such as payroll, supplier payments, and utility bills to prevent operational shutdown.

  • Stabilize the Business: Provide working capital to preserve the company’s going-concern value, ensuring it can generate revenue during the restructuring process.

  • Support Creditor Confidence: By maintaining operations, DIP financing reassures creditors that the debtor is working toward recovery and maximising the value of their claims.

Relevance in Chapter 11 Bankruptcies

DIP financing plays a pivotal role in Chapter 11 filings, bridging the gap between insolvency and reorganization. A business in financial distress often lacks the liquidity to continue operations, which is critical to preserving asset value and employee morale during bankruptcy. Without DIP financing, many companies would be forced to liquidate under Chapter 7, leading to the loss of jobs, assets, and creditor recoveries.

For creditors, DIP financing ensures that the company retains its going-concern value, which typically leads to higher recoveries than a piecemeal liquidation. The court-approved nature of DIP financing also provides a transparent framework for ensuring that new and existing creditors are treated fairly.

Case Study: Hertz Global Holdings – A Successful Chapter 11 Reorganization

Background

Hertz Global Holdings, one of the largest car rental companies in the world, filed for Chapter 11 bankruptcy on May 22, 2020, during the height of the COVID-19 pandemic. Founded in 1918, Hertz operated a fleet of over 700,000 vehicles across 12,000 locations worldwide. Despite its strong market presence, the company faced mounting financial pressures exacerbated by the collapse of global travel during the pandemic.

Causes of Financial Distress

  • Revenue Collapse: The COVID-19 pandemic caused a dramatic decline in travel demand, with global car rental revenues dropping by nearly 50% in 2020. Hertz’s core business was severely affected, leading to unsustainable losses.

  • Excessive Debt: Hertz entered the pandemic carrying over $19 billion in total debt, including vehicle leasing obligations. The revenue shortfall made it impossible for the company to service its debt.

  • Operational Challenges: Hertz struggled with a bloated fleet and high fixed costs. The sudden drop in demand left thousands of vehicles idle, further straining the company’s cash flow.

The Chapter 11 Filing

Hertz filed for Chapter 11 protection to restructure its debts and operations while continuing to operate. The reorganization aimed to address several key issues:

  • Debt Restructuring: Hertz sought to renegotiate terms with creditors to reduce its debt load and extend repayment periods.

  • Fleet Optimization: The company planned to sell off a portion of its vehicle inventory to generate cash and align fleet size with demand.

  • Securing Financing: Hertz needed additional liquidity to sustain operations during the reorganization process.

Key Steps in the Reorganization Process

  • Debtor-in-Possession (DIP) Financing: Hertz secured $1.65 billion in DIP financing to fund its operations during bankruptcy. This financing provided the necessary cash flow to continue serving customers and paying employees while restructuring.

  • Asset Sales: Hertz sold off approximately 200,000 vehicles from its fleet, generating liquidity and reducing carrying costs. This move also allowed the company to focus on optimizing its remaining assets.

  • Debt Negotiations: Hertz renegotiated with creditors to eliminate nearly $5 billion in debt. Creditors received equity and cash payments in exchange, ensuring some recovery while allowing the company to stabilize.

  • Strategic Investment: In May 2021, Hertz exited bankruptcy after receiving a $5.9 billion equity injection from a group of institutional investors, including Knighthead Capital and Certares Management. This recapitalization provided a strong financial foundation for the company’s post-bankruptcy growth.

Outcome

Hertz emerged from Chapter 11 on June 30, 2021, as a leaner and more competitive company. The reorganization allowed the company to:

  • Reduce Debt: Hertz significantly reduced its debt obligations, creating a more sustainable financial structure.

  • Optimize Operations: The sale of excess vehicles and strategic investments in fleet technology enhanced efficiency.

  • Leverage New Opportunities: Post-reorganization, Hertz announced plans to invest in electric vehicles (EVs), including a major purchase of 100,000 Teslas in 2021, positioning itself as a leader in the EV rental market.

Impact on Stakeholders

  • Creditors: Creditors recovered a portion of their investments through equity stakes and cash payments, avoiding the complete loss often associated with liquidation.

  • Employees: The reorganization preserved thousands of jobs, allowing Hertz to retain its workforce while stabilizing operations.

  • Customers: Hertz continued serving customers without major disruptions, ensuring the brand’s market presence remained intact.

  • Investors: The post-bankruptcy equity investment attracted new institutional investors, reflecting confidence in Hertz’s growth potential.

Lessons for Students

  • Importance of DIP Financing: Securing DIP financing is critical for maintaining operations during reorganization. Hertz’s ability to secure $1.65 billion ensured stability during a turbulent period.

  • Strategic Asset Management: Selling non-core assets, such as excess fleet vehicles, is a practical way to generate liquidity and reduce costs in Chapter 11 cases.

  • Investor Confidence: Attracting strategic investors during reorganization can provide not only financial resources but also market credibility.

  • Adaptability and Innovation: Post-bankruptcy, Hertz’s pivot toward electric vehicles demonstrates the importance of aligning business strategies with future market trends.

Why Should I Be Interested in This Post?

Understanding Chapter 11 bankruptcy is essential for anyone aspiring to excel in business, finance, law, or management. It is not merely a legal process but a strategic tool capable of reshaping businesses, preserving jobs, and driving economic recovery. This post provides an in-depth exploration of its mechanics, real-world applications, and strategic insights, offering immense value to students and professionals alike. By studying Chapter 11, you can gain a deep understanding of corporate reorganization frameworks, enhancing your ability to evaluate restructuring strategies and navigate complex financial scenarios. Expertise in this area is highly sought after in fields such as corporate finance, restructuring consulting, investment banking, and insolvency law, with knowledge of concepts like DIP financing, creditor negotiations, and reorganization plans opening doors to careers in distressed asset investing, turnaround consulting, and credit risk management. Moreover, learning about Chapter 11 develops critical skills in assessing financial health, managing liabilities, and evaluating risk—skills that are vital for credit analysis, equity research, and financial strategy roles. Additionally, with the globalization of business, understanding Chapter 11 principles provides transferable insights into international insolvency frameworks, laying a strong foundation for analyzing and adapting reorganization strategies across jurisdictions.

Related posts on the SimTrade blog

   ▶ Snehasish CHINARA Chapter 7 vs Chapter 11 Bankruptcies: Insights on the Distinction between Liquidations & Reorganisations

   ▶ Snehasish CHINARA Chapter 7 Bankruptcies: A Strategic Insight on Liquidations

   ▶ Akshit GUPTA The bankruptcy of Lehman Brothers (2008)

   ▶ Akshit GUPTA The bankruptcy of the Barings Bank (1996)

   ▶ Anant JAIN Understanding Debt Ratio & Its Impact On Company Valuation

Useful resources

US Courts Data – Bankruptcy

S&P Global – Bankruptcy Stats

Statista – Bankruptcy data

About the author

The article was written in January 2025 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2025).

The G of ESG: The Critical Role of Governance

by
Majd MAHRSI

In this article, Majd MAHRSI (ESSEC Business School, Global BBA Program, 2021-2025) delves into the critical role of governance in fostering sustainable business practices, particularly in emerging economies. Drawing from professional experiences such as an internship at DiliTrust, this article explains how strong governance frameworks can transform businesses and create new career opportunities.

ESG and Its Components

ESG (Environmental, Social, and Governance) is a framework used to evaluate a company’s sustainability practices and ethical commitments. It assesses corporate behavior across three dimensions:

  • Environmental (E): Focuses on a company’s impact on the environment, including energy use, waste management, and carbon emissions.
  • Social (S): Examines how a company interacts with its stakeholders, such as employees, customers, and communities, covering diversity, labor rights, and community relations.
  • Governance (G): Relates to a company’s internal systems for ethical decision-making, leadership accountability, and shareholder rights.

ESG has gained significant traction in recent years, with investors prioritizing companies that integrate sustainability into their core operations. This trend has driven the rise of Socially Responsible Investing (SRI), a strategy where investments are made based on a company’s ESG performance alongside financial returns. According to the Global Sustainable Investment Alliance (GSIA), global SRI assets surpassed $35 trillion in 2022, accounting for nearly 36% of all professionally managed assets. This rapid growth reflects the increasing demand for ethical and sustainable investment options, demonstrating how ESG principles are reshaping financial markets.

Further emphasizing the importance of ESG performance, Friede, Busch, and Bassen (2015) conducted a comprehensive meta-analysis of over 2,000 empirical studies, concluding that approximately 90% of the research found a non-negative relationship between ESG performance and financial performance, with the majority indicating a positive correlation. This underscores the financial benefits of robust governance practices as part of an ESG strategy.

Chart: Below is a graphical representation of the growth of Sustainable and Responsible Investing (SRI) assets in the United States from 1995 to 2018.

Growth of Sustainable and Responsible Investing (SRI) assets
Growth of Sustainable and Responsible Investing (SRI) Assets in the United States (1995–2018)
Source: Green America / US SIF Foundation.

Focus on Governance

Governance, the “G” in ESG, refers to the structures, principles, and processes that dictate how a company is controlled and directed. It encompasses:

  • Board Diversity and Independence: A diverse and independent board ensures balanced decision-making, reducing conflicts of interest.
  • Shareholder Rights: Empowering shareholders with voting rights and transparent reporting fosters accountability.
  • Executive Accountability: Ensuring executive compensation aligns with long-term company performance promotes ethical leadership.
  • Risk Management: Establishing frameworks for identifying and mitigating financial, operational, and ESG-related risks.
  • Transparency and Reporting: Clear and consistent disclosure of governance practices builds stakeholder trust.

According to Eccles, Ioannou, and Serafeim (2014), companies adopting sustainability policies, including strong governance practices, tend to outperform their peers in both stock market returns and accounting metrics, further emphasizing the financial value of ethical leadership.

Without robust governance, even the strongest environmental and social efforts can falter due to poor oversight and unethical practices.

Why Governance Matters in ESG

Good governance forms the foundation for a company’s long-term sustainability and financial stability. It ensures that leadership decisions align with stakeholder interests and corporate ethics.

Trust and Reputation

Strong governance builds stakeholder trust by promoting ethical decision-making and transparency. Companies with robust governance frameworks are better positioned to manage crises and maintain reputational integrity. In contrast, scandals like Enron and Wirecard have shown how governance failures can lead to significant financial and reputational damage.

Attraction of Investors

Investors increasingly view governance as a critical factor when evaluating a company’s sustainability and risk profile. Firms with strong governance, such as Unilever and Microsoft, consistently outperform peers in financial performance and stakeholder trust. According to a study published on Academia.edu, both companies have demonstrated strong financial performance due to their governance practices.

Key Elements of Strong Governance

The importance of effective governance is further highlighted by the OECD Principles of Corporate Governance, which provide a globally recognized framework for transparent and accountable corporate practices.

  • Board Diversity and Independence: Diverse and independent boards contribute to better strategic decision-making and accountability. SpringerLink confirms that diversity enhances decision-making quality.
  • Transparency and Reporting: Transparent reporting builds trust among investors and regulators. AB Academies highlights its importance for investor confidence.
  • Executive Accountability: Linking executive pay to long-term performance ensures leadership integrity. Research from AB Academies supports the link between performance and pay.
  • Risk Management: Effective risk management protects against both financial and reputational risks.
  • Ethical Practices: Implementing anti-corruption measures and maintaining compliance with laws.

Governance in Emerging Economies

In emerging economies, strong governance frameworks play a transformative role in fostering investor confidence and driving sustainable economic growth. Countries like Saudi Arabia, with Vision 2030, and South Africa, with its King IV Code of Governance, have implemented significant reforms emphasizing transparency, accountability, and ethical leadership to attract foreign investment and modernize corporate practices.

Family-owned businesses, prevalent in regions like the Middle East and Africa, often face unique governance challenges. Implementing independent boards and family charters can help professionalize these businesses, ensuring long-term stability.

Leveraging Technology for Governance

Technological tools, such as those provided by DiliTrust, are transforming governance practices. Platforms for secure document management, compliance tracking, and board meeting organization improve transparency and decision-making efficiency. During my internship at DiliTrust, I witnessed firsthand how these tools streamline governance processes, ensuring accountability across various operational levels.

Career Opportunities in Governance

Governance expertise can lead to several impactful career paths:

  • Independent Board Member: Certifications like those from the ITA in Tunisia equip professionals to serve on corporate boards, ensuring strategic oversight.
  • Governance Consulting: ESG consulting firms assist businesses in enhancing governance practices, ESG compliance, and sustainability reporting.
  • ESG Rating Specialist: Working in agencies that assess corporate governance and sustainability standards.
  • Risk and Compliance Management: Roles focusing on enforcing governance frameworks within financial institutions and multinational corporations.

Related Posts on the SimTrade Blog

   ▶ Majd MAHRSI My Internship Experience at DiliTrust

   ▶ Anant JAIN Environmental, Social & Governance (ESG) Criteria

   ▶ Nithisha CHALLA Activists in financial markets and the corporate world

   ▶ Anant JAIN MSCI ESG Ratings

Useful Resources

Saudi Arabia’s Vision 2030

South Africa’s King IV Code of Governance

DiliTrust Official Website

OECD Principles of Corporate Governance

Global Reporting Initiative

Institut Tunisien des Administrateurs (ITA)

SpringerLink on Board Diversity

AB Academies on Governance

Academia.edu on Unilever and Microsoft

Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: Aggregated evidence from more than 2,000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), 210–233.

Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management Science, 60(11), 2835–2857.

About the Author

The article was written in January 2025 by Majd MAHRSI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2021-2025).

Valuation methods

by
Andrea ALOSCARI

In this article, Andrea ALOSCARI (ESSEC Business School, Global Bachelor in Business Administration (GBBA) – 2024-2025) explains about three fundamental valuation methods—Comparable Companies Analysis, Precedent Transactions Analysis, and Discounted Cash Flow (DCF) Analysis—and their role in achieving successful deal outcomes.

Which are the main valuation methods?

At the heart of M&A, or Mergers and Acquisitions, stands the concept of valuation, which helps businesses evaluate the idea of expanding or consolidating their position in the market. The estimation of the target company’s implied share price is vitally important both for buyers and sellers and can be conducted with three main valuation methods: Comparable Companies analysis, Precedent Transactions analysis, and Discounted Cash Flow analysis.

Comparable Companies Analysis

The Comparable Companies analysis, colloquially known as “trading comps,” is one of the most common methodologies in M&A valuation. This methodology depends upon the analysis of the target company in comparison to other similar publicly traded companies. The rationale driving this valuation method is simple: a company is valued at a multiple equivalent to that of comparable companies operating in the same industry, same geography and similar financial profiles.

It starts by selecting an industry peer group of companies. Industry, size, geographical location, growth prospects, and profitability usually influence the choice of these groups of companies.

When conducting the valuation of a company, it is necessary to calculate different multiples for the comparable firms and consecutively apply them to the company financials, in order to estimate the value of the target. The most frequently used multiples are Enterprise Value/EBITDA, Price per share/Earnings per share, and Enterprise Value/Revenues.

In specific cases, the analysis can be extended to include industry metrics. For instance, in the case of the telecommunications field, price-per-subscriber metrics may be considered more relevant, while revenue-per-user or annual recurring revenue multiples are more applicable in the case of software companies. Such metrics allow deeper insight, giving a closer approximation for valuation.

While Comparable Companies analysis is market-reflective and easy to apply, there are some limitations. In real life, it is very hard and sometimes impossible to find really comparable companies, especially for niche industries or highly diversified firms. Valuation metrics may also be distorted by recent market volatility and temporary anomalies; therefore analysts need to use judgment when interpreting the results.

Precedent Transactions Analysis

Precedent transaction analysis includes the analysis of past M&A transactions to derive an estimated value of the target company. This technique provides, therefore, an indication of the price that the market has paid in the past, for companies which are similar in some respects.

In carrying out this type of analysis, analysts gather data on transactions similar in nature, deal size, industry and time. Application of the relevant metrics-such as EV/EBITDA and EV/Sales- will subsequently yield a set of valuation multiples. Later on, these are adjusted for synergies, market conditions, and strategic importance, among other factors, to arrive at an estimation of the target company’s value.

The major advantage of Precedent transaction analysis is that this method is derived from actual transaction data, which includes premiums for control and synergies. Despite that, also this methodology has several disadvantages; the historic transactions may not indicate the existing market conditions, and exhaustive data of private deals could be pretty hard to find out. Notwithstanding these disadvantages, this method is one of the main ways to find out the valuation trends in the merger and acquisition market.

Discounted Cash Flow (DCF) Analysis

Discounted Cash Flow Analysis works on a completely different tangent, focusing on the intrinsic value of the company. Whereas both Comparable Company analysis and Precedent Transactions analysis estimate the value of a company based on market comparables, unlike them, DCF estimates a company’s value based on its future expected cash flows. This is useful in cases where the companies have a very different business model or operate in an industry with few comparables.

Essentially, DCF starts off with projecting free cash flows for the target company over some predefined period of projection. These are then discounted back to the present using the firm’s cost of capital, reflecting risks involved in the business. Further, will be necessary to calculate the terminal value of the company, discounting it to the present value and adding it back to the value of the projection period.

The strengths of DCF lie in its flexibility and that it is based on fundamental performance, rather than on market sentiment. However, it is highly sensitive to assumptions like growth rates, discount rates, and terminal value calculations. Even small changes in these inputs may strongly affect the final valuation outcome. It therefore requires analysts to be very strict in justifying their assumptions and testing the robustness of their models via sensitivity analysis.

For example, we can consider a technology start-up with very high growth potential. Analysts would project cash flows considering very rapid revenue increases and very significant reinvestments in technology. In contrast, one would focus on stable cash flows and incremental growth while valuing a mature industrial firm. The DCF model would be flexible enough to accommodate those contexts.

Combining Valuation Techniques

No valuation approach is ideal on its own. Each of the techniques gives a different insight and is hence suited for different situations. For instance, Comparable Company analysis would be perfect in judging the relative value of a company with its peers, whereas Precedent Transactions analysis provides a reality check based on actual market transactions. On the other hand, DCF provides an intrinsic in-depth analysis of the business, independent of the market noise.

In order to provide a more complete assessment, the triangulation approach is increasingly being used by incorporating findings from valuations of different techniques. As an example, in technology industries, Comparable Company analysis might provide a view on how markets valued comparable businesses, DCF might be applied with respect to long-term intellectual property value and growth potentials, Precedent Transactions analysis could help identify synergies from historical deals and therefore complement an otherwise forward-looking DCF approach.

Finally, the values are presented through a football field chart, a type of graph that is particularly helpful in visualizing the results and comparing various approaches to valuation. This chart usually assists stakeholders, but not only, in rapidly identifying overlap and outliers by portraying ranges of value generated from multiple approaches on one horizontal axis.

Example of a DCF valuation

In the following section, you can download an Excel file containing a valuation performed using the discounted cash flow (DCF) method. The file includes all the calculation details, such as projected cash flows, the discount rate applied, and the resulting net present value. Additionally, it contains sheets where various assumptions were made, along with the forecasting of financial statement items.

Example of DCF valuation
Example of DCF valuation
Source: Personal analysis

In this discounted cash flow (DCF) analysis, the valuation is performed by projecting future free cash flows to the firm (FCFF) over a specified forecast period. Key assumptions, such as revenue growth, cost of goods sold (COGS) percentage, EBITDA margin, depreciation, capital expenditures (CapEx), and changes in net working capital (NWC), are made to forecast the financial statement items.

The projected FCFF values are then discounted using a weighted average cost of capital (WACC) to estimate their present value. A terminal value is calculated at the end of the forecast period, representing the business’s residual value. The total enterprise value is obtained by summing the discounted FCFFs and the discounted terminal value. Lastly, adjustments for net debt and outstanding shares are made to derive the implied equity value and share price.

Additionally, the file includes a sensitivity analysis to show how changes in growth rate and WACC impact the enterprise value.

You can download below the Excel file for valuation.

Download the Excel file with a valuation example

Why should I be interested in this post?

The following post outlines some of the key valuation techniques in M&A transactions and is hence very useful for finance professionals, students, and anyone interested in the corporate world. This article offers practical tools that help make an appropriate assessment of deal value utilizing methodologies like Comparable Companies Analysis, Precedent Transactions Analysis, and Discounted Cash Flow Analysis.

Whether it is for an investment banking career or an intrinsic desire to understand how things work in corporate finance, it is possible to find some real actionable insight in this article. The combination of a theoretical base with real applications allows the reader to take these concepts into dynamic market environments.

Related posts on the SimTrade blog

   ▶ All posts about valuation Valuation methods

   ▶ Lou PERRONE Free Cash Flow

   ▶ Bijal GANDHI Cash Flow Statement

   ▶ Nithisha CHALLA Factset

   ▶ Andrea ALOSCARI My Internship Experience in the Corporate & Investment Banking division of IMI – Intesa Sanpaolo

Useful resources

Joshua Rosenbaum and Joshua Pearl (2024) “Investment Bnaking : Valuaito, LBOs, M&A and IPOs” Wiley, Third Edition.

Alexandra Reed Lajoux (2019) “The Art of M&A, Fifth Edition: A Merger, Acquisition, and Buyout Guide” McGraw-Hill Education.

Tim Koller, Marc Goedhart, David Wessels (2010) “Valuation: Measuring and Managing the Value of Companies”, McKinsey and Company.

Aswath Damodaran (2024) Valuation Modeling: Excel as a tool (YouTube video).

About the author

The article was written in January 2025 by Andrea ALOSCARI (ESSEC Business School, Global Bachelor in Business Administration (GBBA) – 2024-2025).

December 2024: Top Posts of the SimTrade Blog about cryptos

by

December 2024: Top Posts of the SimTrade Blog about cryptos

As the Bitcoin price was over $100,000, I have selected very interesting posts about a very interesting topic: cryptos.

Most Read Posts

Please find below the most read posts from the SimTrade blog about cryptos:

▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

▶ Snehasish CHINARA Litecoin: Analysis of the Pioneering Cryptocurrency’s Impact on Digital Finance

▶ Snehasish CHINARA How to get crypto data

Hugo MEYER The regulation of cryptocurrencies: what are we talking about?

▶ Alexandre VERLET Cryptocurrencies

SimTrade choice

Have a look on the post below!

▶ Nithisha CHALLA FactSet

How is it to be in the Deals Department at PwC Tunisia?

by
Majd Mahersi

In this article, Majd MAHRSI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2021-2025) shares his professional experience during a six-month internship in the Deals department at PwC Tunisia. This experience provided me with invaluable insights into the world of finance and consulting.

About PwC Tunisia

PricewaterhouseCoopers (PwC) is one of the Big Four accounting firms and a global leader in professional services. Founded in 1998 from a merger between Price Waterhouse and Coopers & Lybrand, PwC has grown to provide assurance, advisory, and tax services in over 150 countries. The firm’s expertise spans industries ranging from technology and healthcare to banking and energy, offering tailored solutions to address complex business challenges.

PwC Tunisia, established to cater to the needs of the North African market, has been pivotal in advising local and international businesses. Its Deals department focuses on transaction advisory services, mergers and acquisitions (M&A), and financial due diligence, enabling clients to make informed investment decisions in a dynamic economic environment.

Logo of PwC.
Logo of PwC Tunisia
Source: the company.

My Internship at PwC Tunisia

My six-month internship at PwC Tunisia was in the Deals department, where I gained hands-on experience in transaction services. This marked my first professional foray into finance, a field I had been eager to explore. The department’s primary function is to assist clients with financial due diligence, a critical process in mergers and acquisitions. This involves analyzing financial records, identifying risks, and providing actionable insights to clients, whether on the buy-side or sell-side of a transaction.

In addition to due diligence, the team supports clients in valuations and financial diagnostics, helping them assess a company’s worth and its operational health. I also had the opportunity to work on engagements where funds sought advice on the best timing to divest their assets, showcasing the strategic aspect of transaction services.

My Missions

My role in the Deals department was multifaceted and dynamic, encompassing a variety of tasks that were integral to the success of transaction services projects. One of my primary responsibilities was conducting financial due diligence. This involved scrutinizing a company’s financial statements to uncover risks, assess opportunities, and verify the accuracy of reported data. These analyses were essential for clients to make informed decisions during mergers or acquisitions.

Another critical mission was creating and reviewing financial presentations. Translating raw financial data into clear, insightful slides that adhered to PwC’s global presentation standards required both analytical and creative skills. These slides were often used in client meetings, making them a crucial part of the decision-making process.

I also worked on preparing financial diagnostics, which provided an overview of a company’s financial health, operational efficiency, and market position. Additionally, I contributed to the valuation process by gathering and analyzing market and company-specific data, supporting the team in determining an accurate and fair valuation for transactions.

Lastly, I played a role in ensuring the quality and coherence of final reports delivered to clients. This involved cross-referencing financial data, identifying inconsistencies, and collaborating with senior team members to refine insights. These tasks taught me the importance of precision and attention to detail in professional finance settings.

Required Skills and Knowledge

Working in the Deals department demands a solid foundation in finance and accounting, as well as proficiency in tools like Excel and PowerPoint. Creativity in crafting slides that effectively communicate complex information is crucial. Collaboration is another essential skill, as teams typically consist of up to five experts working closely together under tight deadlines.

In addition to technical skills, the role required resilience and stress management. The high-stakes nature of transactions meant that meeting deadlines was often challenging but rewarding. PwC provided a comprehensive onboarding program that covered essential aspects such as data security, corporate ethics, and professional standards, ensuring I was well-prepared for the role.

What I Learned during my internship at PwC Tunisia

This internship was a transformative experience that bridged the gap between theoretical knowledge and practical application. I enhanced my understanding of finance and accounting, particularly in the context of real-world corporate transactions. Working with seasoned professionals provided me with mentorship and insights into best practices.

The structured training sessions at the start of the internship also equipped me with valuable knowledge about legal, social, and ethical considerations in corporate settings. This holistic approach to professional development was instrumental in shaping my skills and career aspirations.

Financial Concepts Related to My Internship

Firm Valuation

Firm valuation is the process of determining the worth of a business, considering factors such as assets, liabilities, market conditions, and future earnings potential. In the context of transaction services, valuation is not just about calculating numbers—it’s about understanding the strategic rationale behind a transaction. For instance, during my internship, I assisted in gathering data to support valuations, including analyzing comparable companies, market trends, and financial projections. This work provided clients with critical insights into whether a deal was financially viable and strategically aligned with their goals.

Financial Due Diligence

Financial due diligence is an investigative process that provides an in-depth understanding of a company’s financial performance, risks, and opportunities. In transaction services, it involves verifying the accuracy of financial statements, assessing working capital needs, and identifying any hidden liabilities or operational inefficiencies. My role included evaluating financial metrics, analyzing trends, and ensuring that all data was thoroughly documented for client presentations. This process was pivotal in helping clients mitigate risks and make informed decisions during mergers and acquisitions.

Mergers and Acquisitions

Mergers and acquisitions (M&A) are strategic actions where companies combine forces or one entity acquires another to achieve growth, diversification, or operational efficiencies. Transaction services play a key role in these processes by providing financial and strategic insights. During my internship, I was involved in preparing data for M&A scenarios, including assessing synergies, analyzing cost structures, and estimating post-merger integration costs. This work highlighted the complexity of M&A transactions and the critical role of accurate financial analysis in ensuring their success.

Why Should You Be Interested in This Post?

This post is particularly relevant for ESSEC students aiming for careers in finance. An internship in PwC’s Deals department provides a solid foundation in financial analysis, due diligence, and strategic decision-making. For those aspiring to work in investment banking or private equity, this experience serves as a steppingstone, offering the skills and credibility needed to excel in competitive roles.

I encourage students to consider opportunities in international offices, where the competition for roles may be less intense, and the learning experience equally enriching.

Related Posts on the SimTrade Blog

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

   ▶ Mickael RUFFIN My Internship Experience as a Strategy Consultant at Devlhon Consulting

   ▶ Basma ISSADIK My experience as an M&A Analyst Intern at Oaklins Atlas Capital

Useful Resources

PwC

PwC Tunisie

Deloitte Due Diligence

About the Author

The article was written in December 2024 by Majd MAHRSI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2021-2025).

My Internship Experience in sales at DiliTrust

by
Majd Mahersi

In this article, Majd MAHRSI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2021-2025) shares his professional experience as an intern in sales at DiliTrust.

About DiliTrust

DiliTrust is a global leader in corporate governance solutions, specializing in secure and innovative software designed to optimize board and executive operations. The company offers a suite of products, including board portals, legal entity management, contract lifecycle management, and financial analysis tools. With a presence in over fifty countries, DiliTrust serves a diverse range of clients, from multinational corporations to government organizations.

Founded on the principles of innovation and excellence, DiliTrust aims to empower organizations by enhancing decision-making and ensuring compliance with the highest standards of governance. Their flagship products enable seamless communication, secure data management, and efficient collaboration among stakeholders. DiliTrust is committed to sustainability, aligning its operations with ESG (Environmental, Social, and Governance) criteria to support global corporate responsibility initiatives.

Logo of DiliTrust.
Logo of DiliTrust
Source: the company.

My Internship at DiliTrust

I completed a three-month internship at DiliTrust’s Dubai office, in the sales department, which manages operations across the Middle East and Africa. This branch is a critical hub for the company, contributing significantly to its global revenue. The internship was conducted in collaboration with the Institut Tunisien des Administrateurs (ITA), DiliTrust’s strategic partner in Tunisia.

During my tenure, I immersed myself in the dynamic field of corporate governance and gained firsthand experience in market expansion strategies. This experience allowed me to work on high-impact projects that directly contributed to the company’s growth and its efforts to enhance governance practices in emerging markets.

My Missions

My primary mission was to penetrate the Tunisian market by identifying and approaching potential clients, with the objective of securing contracts. This involved extensive market research, client outreach, and relationship building. In parallel, I served as the liaison between DiliTrust and ITA, managing all logistical aspects of their collaboration.

A standout moment during my internship was organizing a prestigious corporate governance event in Tunisia. This high-profile gathering featured global leaders, including the Vice President of the World Bank, the Governor of the Tunisian Central Bank, and Christian de Boissieu, a renowned economist. I was instrumental in coordinating the event’s logistics, from importing essential equipment to managing customs clearance. My responsibilities also included hosting key stakeholders, ensuring smooth communication, and facilitating meaningful discussions on governance practices.

Required Skills and Knowledge

Excelling in this internship required a diverse skill set. Strong organizational and project management abilities were critical for handling complex logistics and tight deadlines. Effective communication skills and social intelligence enabled me to interact confidently with senior executives and high-profile clients. Additionally, my multilingual proficiency (French, English, Arabic, and Tunisian dialect) was invaluable for building rapport and navigating cultural nuances.

Technical skills such as data analysis and proficiency in governance software further supported my role. My background in finance and leadership, cultivated through academic and extracurricular experiences, prepared me to tackle challenges with confidence and adaptability.

What I Learned during my internship at DiliTrust

This internship was a transformative experience that expanded my understanding of corporate governance and international business. I learned to navigate the complexities of market entry strategies, develop persuasive communication techniques, and manage cross-cultural collaborations. These experiences not only enhanced my professional competencies but also deepened my appreciation for the importance of governance in fostering sustainable business growth.

One key takeaway was the significance of agility and resourcefulness in overcoming unexpected challenges. For instance, coordinating customs processes and resolving last-minute logistical issues required quick decision-making and creative problem-solving. These lessons have equipped me with the resilience and adaptability needed to thrive in high-pressure environments.

Financial Concepts Related to My Internship at DiliTrust

Environmental, Social, and Governance (ESG)

Environmental, Social, and Governance (ESG) criteria are a framework for assessing how an organization integrates sustainability into its business model and operations. ESG considerations influence investment decisions, emphasizing long-term value creation while minimizing environmental and social risks. Understanding ESG is essential for navigating modern financial landscapes, where stakeholders demand transparency and ethical practices. My internship exposed me to the real-world application of ESG principles in governance, emphasizing their impact on business sustainability and stakeholder trust.

Good Governance

Good governance involves adhering to principles such as accountability, transparency, and ethical leadership. It is a cornerstone for maintaining investor confidence and ensuring operational efficiency. In a financial context, good governance reduces risks, enhances decision-making, and strengthens organizational integrity. My internship allowed me to observe the practical implementation of these principles, demonstrating their vital role in achieving strategic objectives and fostering sustainable growth.

Digitalization of Board Operations

Digitalization in board operations enhances efficiency, security, and collaboration by leveraging technology to streamline decision-making processes. This transition involves adopting digital tools for secure data management, virtual meetings, and automated workflows. The shift to digital platforms mitigates risks associated with manual processes and ensures compliance with regulatory standards. My exposure to digital governance solutions underscored their transformative impact on organizational agility and strategic alignment.

Why Should You Be Interested in This Post?

If you are an ESSEC student seeking a career in finance, this post highlights the value of gaining international exposure and practical experience in a dynamic and growing field. DiliTrust’s global presence and innovative approach to corporate governance make it an ideal company for interns looking to develop a strong foundation in governance and finance.

The internship offered opportunities to work on high-impact projects, interact with industry leaders, and build a professional network across borders. For students interested in finance, governance, or technology, DiliTrust provides a unique platform to explore these intersections in a real-world context.

Related Posts on the SimTrade Blog

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

   ▶ Anant JAIN Environmental, Social & Governance (ESG) Criteria

   ▶ Anant JAIN Socially Responsible Investing

   ▶ Anant JAIN MSCI ESG Ratings

Useful Resources

DiliTrust

Principles for Responsible Investment (PRI)

OECD Principles of Corporate Governance

Gartner IT Insights

About the Author

The article was written in December 2024 by Majd MAHRSI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2021-2025).

My Internship Experience as a Data Analyst at Africa Verify in Casablanca

by
Majd MAHRSI Africa Verify

In this article, Majd MAHRSI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2021-2025) shares his professional experience as a data analyst at Africa Verify in Casablanca, Morocco, highlighting the insights, skills, and financial knowledge gained during this intensive one-month internship.

About Africa Verify

Africa Verify is an innovative company based in Casablanca, Morocco, specializing in compliance and data analytics solutions. The company provides cutting-edge tools and services to detect financial crimes such as money laundering and to ensure compliance with international financial regulations. Africa Verify’s mission is to empower businesses and institutions with the technological capabilities needed to maintain transparency and ethical practices, fostering trust in financial systems.

The company operates at the intersection of technology, finance, and law, delivering solutions that leverage artificial intelligence (AI) and machine learning to enhance compliance processes. By collaborating with financial institutions, government entities, and multinational corporations, Africa Verify contributes to strengthening regulatory frameworks across African markets. Their expertise in data-driven decision-making and their commitment to innovation have established them as a leader in compliance technology.

With a focus on creating scalable and user-friendly solutions, Africa Verify is shaping the future of compliance management. Their flagship projects include AI-based tools for risk assessment, automated fraud detection systems, and platforms designed to streamline Know Your Customer (KYC) processes.

Logo of the company.
Logo of Africa Verify
Source: the company.

My Internship at Africa Verify

During my one-month internship at Africa Verify, I worked as a data analyst in their compliance department, contributing to an ambitious project designed to revolutionize financial compliance using artificial intelligence. This project aimed to build a tool capable of providing real-time legal and financial risk assessments by analyzing vast datasets with high accuracy and efficiency.

My responsibilities were divided into two main areas. For most of the internship, I focused on analyzing and categorizing historical data related to financial crimes. This work involved identifying patterns and anomalies, which were then used to train the AI system. In the final week, I observed and provided input for the project’s development team as they integrated these insights into the AI tool, ensuring it met compliance standards and addressed real-world challenges faced by financial institutions.

My Missions

My primary mission was to support the development of an AI-driven compliance tool capable of detecting money laundering and other financial crimes. This required extensive research into existing money laundering typologies and compiling case studies to create a database that could serve as a training set for the AI model.

Another key task involved analyzing the effectiveness of current compliance measures. By identifying gaps and inefficiencies, I contributed to refining the AI system’s algorithms, ensuring its outputs were not only accurate but also actionable for clients. The work required a meticulous approach to data organization, as well as collaboration with the development team to translate analytical insights into technical specifications.

Additionally, I participated in the strategic planning sessions for the AI tool’s rollout, offering a data analyst’s perspective on how the product could be optimized for different market segments. This provided a unique opportunity to bridge the gap between technical development and business strategy.

Required Skills and Knowledge

This internship demanded a combination of technical expertise and interpersonal skills. Strong analytical abilities were crucial for understanding complex datasets and extracting meaningful insights. Proficiency in tools such as Excel and Python, as well as familiarity with statistical methods, were indispensable for the data analysis tasks.

Equally important were soft skills, including adaptability and cultural sensitivity. Working in a foreign country required me to quickly integrate into a new team and build rapport with colleagues from diverse backgrounds. Effective communication and teamwork were essential, especially when collaborating with legal experts, developers, and other stakeholders to align on project goals.

The ability to manage time effectively and prioritize tasks under tight deadlines was another critical skill. My previous experiences in data analysis and project management helped me navigate these challenges, allowing me to contribute meaningfully to the project.

What I Learned during my internship at Africa Verify

This internship was a profound learning experience that expanded my knowledge of compliance and financial risk management. I gained a deeper understanding of the role that data plays in shaping regulatory practices and how technology can be leveraged to enhance these processes. Specifically, I learned how AI and machine learning models are trained, tested, and deployed to address real-world compliance challenges.

The experience also underscored the importance of cross-functional collaboration. Working alongside experts in law, technology, and finance taught me to appreciate the interdisciplinary nature of compliance projects. I learned how to navigate the complexities of aligning diverse perspectives to achieve a common objective.

On a personal level, the internship enhanced my adaptability and resilience. Overcoming cultural and logistical challenges in a new environment reinforced my ability to thrive in dynamic, high-pressure settings.

Financial Concepts Related to My Internship

I detail below three concepts that were useful during my internship: Money Laundering, Financial Action Task Force (FATF), Know Your Customer (KYC) and Compliance.

Money Laundering

Money laundering is a complex process by which criminals disguise the origins of illegally obtained funds to make them appear legitimate. This involves three stages: placement (introducing illicit funds into the financial system), layering (moving funds through a series of transactions to obscure their origin), and integration (reintroducing funds into the legitimate economy). Understanding these stages was crucial during my internship, as I analyzed case studies to identify patterns and behaviors that the AI system could detect.

The work emphasized the need for robust detection mechanisms to combat money laundering, as traditional methods are often slow and resource-intensive. By incorporating these insights, the AI system aims to automate detection processes, significantly enhancing the efficiency and accuracy of compliance operations.

Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an intergovernmental organization that sets global standards to combat money laundering, terrorist financing, and other financial crimes. FATF’s recommendations serve as a benchmark for national and institutional compliance programs, emphasizing risk-based approaches and robust monitoring systems.

My internship required an in-depth understanding of these recommendations to ensure that the AI-driven compliance tool adhered to international standards. This involved studying FATF guidelines to identify key compliance metrics that the tool needed to address. The experience underscored the importance of aligning technology with regulatory frameworks to enhance its credibility and usability in global markets.

Know Your Customer (KYC) and Compliance

Know Your Customer (KYC) refers to the process of verifying the identity of clients to prevent financial crimes such as money laundering, fraud, and terrorist financing. Effective KYC measures include identity verification, due diligence, and ongoing monitoring of client activities. These processes are essential for maintaining the integrity of financial systems and ensuring compliance with regulatory requirements.

During my internship, I contributed to the development of an AI tool designed to streamline KYC processes. The tool uses automated data collection and analysis to enhance the efficiency of identity verification and risk assessment. This not only reduces the time and cost associated with traditional KYC measures but also minimizes errors and improves compliance outcomes. The project highlighted the transformative potential of technology in simplifying complex regulatory procedures.

Why Should You Be Interested in This Post?

This post is particularly relevant for ESSEC students interested in pursuing careers in compliance, risk management, or data analytics. Africa Verify offers a unique opportunity to work on cutting-edge projects that combine finance, technology, and law. Additionally, earning certifications such as the ACAMS (Certified Anti-Money Laundering Specialist) can set you apart in the competitive job market by demonstrating expertise in anti-financial crime measures.

The internship provides hands-on experience in solving complex compliance challenges, fostering a deep understanding of how data and technology are reshaping the financial industry. It is an excellent opportunity to build a professional network and develop skills that are highly valued in today’s global job market.

Related Posts on the SimTrade Blog

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

   ▶ Esten CHAUVIN Compliance et régulation dans le secteur financier : focus sur les prêts de titres et les dérivés OTC

Useful Resources

Africa Verify

Financial Action Task Force (FATF)

Financial Action Task Force (FATF) FATF Recommendations

ACAMS

About the Author

The article was written in December 2024 by Majd MAHRSI (ESSEC Business School, Global Bachelor in Business Administration (GBBA), 2021-2025).

My Internship Experience in the Corporate & Investment Banking division of IMI – Intesa Sanpaolo

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Andrea ALOSCARI IMI Intesa Sanpaolo

In this article, Andrea ALOSCARI (ESSEC Business School, Global Bachelor in Business Administration (GBBA) – 2024-2025) shares his professional experience as a Summer Intern in the Corporate & Investment Banking Division of IMI – Intesa Sanpaolo.

About IMI – Intesa Sanpaolo

IMI – Intesa Sanpaolo is one of the largest and known banking groups in Italy, standing at the forefront of the Italian financial system and among major international banking groups. Based on the creation by the merger of two historic Italian banks, IMI – Intesa Sanpaolo stands today for innovation and sustainability as a leader in financial services. It operates a variety of services ranging from retail to corporate and investment banking, serving a vast clientele of millions of individuals and companies worldwide. It is committed long-term to creating value for its clients through sustainable performance combined with social responsibility.

Market Hub is Intesa Sanpaolo Group’s specialized department within IMI Corporate & Investment Banking Division. It is a business unit covering advanced trading and investment solutions for institutional and corporate clients. The Market Hub, in this regard, combines capital markets services with advanced technology in the said business unit to offer financial solutions that are efficient, transparent, and reliable. Thus, Market Hub acts as one of the leaders in the capital market world, offering everything from advanced electronic trading platforms to custom-designed investment solutions. It is here that I got an opportunity to work as a summer intern and hence acquire so much insight into the world of modern financial markets, working alongside some of the brightest brains in the industry.

Logo of IMI – Intesa Sanpaolo.
Logo of IMI - Intesa Sanpaolo
Source: the company.

My internship at IMI – Intesa Sanpaolo

In the Market Hub team of Intesa Sanpaolo, I was assigned diverse responsibilities that gave me a wide view of capital markets. Among the main tasks I carried out each day, I prepared reports summarizing and analyzing the results of the activity of my team in the previous day on fixed income, derivatives, and bonds. These reports were crucial in providing the proper overview of how the market was performing, how the team was doing, and whether it was hitting its goals. These reports required me to distill complex financial data into clear, concise, actionable insights for internal stakeholders and more senior bankers. It was there that I learned to present findings to both senior and peer colleagues.

Another important responsibility was to analyze the performance of Market Hub on different platforms such as Bloomberg, Tradeweb, BondVision, and MarketAxess. This included analysis of trading data and platform-specific metrics for market trend analysis and efficiency of performance. In the process, I gained significant knowledge of how technology fits into financial operations and how different trading platforms are designed in today’s investment banking world.

Every day, I actively participated in morning calls, where I discussed the most relevant market news with Milan, New York and London branches teams, regarding the current trends and the Market Hub results. This role called for being informed on all current global financial events and sharing the most relevant information that could have an impact on the team’s activity. Furthermore, I supported the sales team with client contract preparation, making sure everything was accurate in the paperwork, and facilitating smooth coordination with both sales and trading teams.

Finally, I received theoretical and practical training from Bloomberg, both at Intesa Sanpaolo and at its Milan headquarters. These really helped to boost my knowledge of the Bloomberg Terminal, from a basic to upper-intermediate level and hence to navigate market data more effectively.

The fast-paced environment of a trading desk.
The fast-paced environment of a trading desk
Source: StockCake.

My missions

My internship responsibilities were diverse and challenging, reflecting the dynamic nature of the Market Hub’s operations. My missions included:

Preparing Analytical Reports: I have collected and analyzed data in order to prepare reports on market trends, trading performance, and product evaluations. These reports were of utmost importance for internal strategy discussions and client presentations, requiring precision and a keen understanding of financial concepts. Producing these also helped me build a stronger command of data visualization techniques and financial storytelling.

Supporting Trading Desk Operations: I analyzed real-time market data to assist traders in making informed decisions. This entailed monitoring key indicators, assessing liquidity conditions, and identifying opportunities for optimizing trade execution strategies. The depth of analysis required for this role provided me with a strong foundation in market mechanics and trading dynamics.

Collaborating with the Sales Team: I worked with the sales team where I analyzed client needs, helped the sales to prepare tailored financial solutions, and ensured effective communication between the sales and trading teams. This experience has allowed me to learn how to manage client relationships and how product offers must be made, in order to meet clients’ expectations and consequently establish important partnerships.

Required skills and knowledge

The internship required technical expertise, analytical acumen, and interpersonal skills. From a technical point of view, it engaged my knowledge of financial instruments such as derivatives, bonds, and fixed-income products. Knowledge of data analysis and data visualization by tools such as Excel, Bloomberg and Power-BI has been fundamental in the execution of data analysis. Proficiency in Excel allowed me to go through big spreadsheets of data and extrapolate for the team important information. Similarly, Bloomberg Terminal was helpful to access market data, monitor trading activity, or conduct deep research on any financial security.

Another very useful aspect was the quantitative and statistical knowledge. My comprehension of the main concepts such as regression analysis and time series forecasting, also if not strictly necessary, enabled me to interpret complex datasets and support predictive analysis tasks on Power-BI.

Equally important were the soft skills that enabled me to thrive in a high-pressure environment. Effective communication was extremely important because it called for frequent presentation of the results, on quite a technical level, to the Heads of the team. Adaptability and problem-solving were other critical skills during my internship, especially in periods when the workload was heavy and there was the necessity to reorganize the priorities. Lastly, teamwork ability played a significant role when I was assigned collaborative tasks with other interns and analysts.

What I learned

My internship at Intesa Sanpaolo was really enriching and opened my eyes to the world of financial markets and the strategic relevance of technology in modern banking. One of the most important lessons learned during this experience, if not the most important, is surely the precision and attention to detail that every operation of a financial nature should have. Whether in the analysis of market data or in the preparation of presentations for clients, everything had to be extremely precise and had to respect high standard.

I also learned a lot about how trading and market analysis works. How customer behavior, market dynamics, and technology systems interact allowed me to gain a comprehensive understanding of the variables affecting trading results. The internship has also made clear the importance of teamwork and communication toward the success of an organization. The interpersonal skills developed in working closely with leaders of the sector will undoubtedly help me in the future.

The use of Bloomberg Terminal, a very important tool in researching market data, real-time financial news, and deep research into different asset classes, was another skill I was further refining. Bloomberg allowed me to find instantly relevant information and develop actionable insight, crucial both for the trading strategy and for client presentations. This not only helped me to improve my technical knowledge but also instilled in me the need to use the right tools to perform efficient analysis.

Perhaps, most importantly, this experience allowed me to dive into the transformative impact of technology on the financial industry: from automated trading systems to advanced analytics tools, integration of technology into financial processes changes how institutions operate. Overall, this experience encouraged me to go deeper into the area where finance and technology meet.

Bloomberg Terminal, an essential tool for market analysis and decision-making.
Bloomberg Terminal, an essential tool for market analysis and decision-making IMI Intesa Sanpaolo
Source: Bloomberg.

Financial concepts related my internship

I present below three financial concepts that were particularly relevant to my internship experience: market liquidity, derivatives and bond pricing, and trade execution algorithms.

Market Liquidity

Market liquidity refers to the ease with which an asset can be bought or sold in the market without causing a significant change in its price. Trading volumes, bid-ask spreads, and other indicators are only a few aspects that must be analyzed in an attempt to assess the depth and stability of markets. I learned that various events in the market such as the decisions made by central banks or geopolitical events, have huge influences on liquidity. This knowledge also underlined timing in trading decisions for maximum efficiency and minimum risk exposure.

Derivatives and Bond Pricing

The internship gave me an opportunity to learn and understand some of the intricacies related to derivatives and bond pricing. I understood, also if not personally performed, the ways of pricing derivatives, options, and futures based on volatility, interest rates, and prices of the underlying assets. I mastered methodologies for bond pricing, including the time value of future cash flows and periodic coupon payments in addition to the face value at maturity. This is based on interest rate dynamics and credit spreads, which affect fixed-income valuation. Although I did not perform the valuations myself, this experience really improved my capabilities to interpret quantitative models and to read complex financial data.

Trade Execution Algorithms

These advanced trading tools are engineered to achieve the best possible outcome in trades at an extremely low market impact and with a low transaction cost. In an electronic trading environment, I was privileged to pick up some concepts on the design and application of these algorithms. Knowledge about how the algorithms were calibrated in a balance between speed, cost, and market conditions gave me valuable insight into technological changes shaping today’s practices of trading.

An example of market liquidity trends analysis.
Bloomberg Terminal, an essential tool for market analysis and decision-making IMI Intesa Sanpaolo
Source: ETFstream.

Why should I be interested in this post?

This article will be really helpful for all students who want to orient their careers in finance, investment banking, and trading. It underlines the importance of practical experience within such a prestigious institution as IMI – Intesa Sanpaolo and the knowledge and abilities necessary for such a career. Understanding how markets and technology interact, in fact, becomes key for every finance aspirant, and this internship is a great illustration of that.

Related posts on the SimTrade blog

Professional experiences in finance

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

   ▶ Aastha DAS My experience as an investment banking analyst intern at G2 Capital Advisors

   ▶ Suyue MA Expeditionary experience in a Chinese investment banking boutique

   ▶ Andrea ALOSCARI Valuation methods

Trading

   ▶ Trading

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   ▶ Michel VERHASSELT Trading strategies based on market profiles and volume profiles

   ▶ Michel VERHASSELT Market profiles

Useful resources

IMI Intesa Sanpaolo – Corporate & Investment Banking Division

Market HUB Intesa Sanpaolo

About the author

The article was written in December 2024 by Andrea ALOSCARI (ESSEC Business School, Global Bachelor in Business Administration (GBBA) – 2024-2025).

The Golden Boy: Une immersion dans l’univers des banques d’investissement

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The Golden Boy: Une immersion dans l’univers des banques d’investissement

Lucas BAURIANNE

Dans cet article, Lucas BAURIANNE (ESSEC Business School, Programme Grande Ecole – Master in Management, 2024-2027) nous propose de découvrir The Golden Boy, une bande dessinée innovante qui retrace l’aventure d’un étudiant en école de commerce découvrant les rouages des banques d’investissement. Ce récit, autant éducatif que captivant, aborde les concepts fondamentaux de la finance de marchés et les secrets pour réussir dans ce domaine compétitif.

Couverture de la bande dessinée The Golden Boy.
Logo de l’entreprise
Source : Lucas Baurianne.

Une immersion complète dans la finance de marché

The Golden Boy se distingue par son approche unique : intégrer la théorie et la pratique dans une narration inspirante. À travers plus de 110 pages, plus de 40 concepts de finance de marché sont expliqués avec simplicité et profondeur. Vous découvrirez par exemple des notions comme le pricing des options, les mécanismes de trading algorithmique, et les dynamiques des marchés obligataires.

Des insights concrets pour réussir

En plus de la théorie, la BD offre des conseils pratiques sur la préparation aux stages, des astuces pour briller lors des entretiens, et des récits inspirés de la réalité. Les étudiants peuvent se reconnaître dans le parcours du protagoniste, un jeune plein d’ambition qui découvre les codes des banques d’investissement et décroche une opportunité dans une prestigieuse banque américaine à Wall Street.

Cas pratiques et actualité

Un autre aspect fascinant de The Golden Boy est l’intégration de cas pratiques liés à l’actualité présidentielle américaine. Ces exemples permettent de comprendre comment les événements politiques influencent les marchés financiers et les décisions stratégiques des traders.

Trois concepts financiers à découvrir dans la BD

Les produits dérivés

Avec The Golden Boy , vous comprendrez l’utilisation des produits dérivés et leurs objectifs, comme la gestion des risques ou la spéculation. Appréhender leur pricing, leurs payoffs et les facteurs qui influencent leur valeur. Ces produits sont évalués à l’aide de modèles tels que Black-Scholes, prenant en compte des éléments comme la volatilité, la durée jusqu’à l’échéance et les taux d’intérêt.

Les stratégies de couverture

Avec The Golden Boy , vous découvrirez comment les traders et les investisseurs utilisent des instruments dérivés, tels que les options, les futures ou les swaps, pour se protéger contre les risques de marché. Ces stratégies permettent de limiter les pertes potentielles liées à des fluctuations imprévues des actifs sous-jacents, comme les actions, les devises ou les matières premières. La BD illustre ces notions à travers des exemples concrets, comme la protection contre la volatilité des marchés lors d’événements géopolitiques ou économiques majeurs, montrant comment une couverture bien pensée peut sécuriser les portefeuilles tout en maintenant des opportunités de profit.

Les Greeks en finance

Avec The Golden Boy , vous maitriserez les Greeks, des outils fondamentaux en finance pour évaluer et gérer les risques associés aux options. Dans la BD, ces concepts sont illustrés à travers des cas pratiques, tels que l’effet des élections présidentielles américaines sur la volatilité des marchés financiers, offrant un aperçu concret de leur application dans des contextes réels.

Pourquoi devriez-vous lire cette BD ?

Que vous soyez étudiant curieux ou passionné par la finance, cette BD vous permettra de mieux comprendre un univers complexe et captivant. Elle a été réalisée avec l’aide de traders issus des plus grandes banques d’investissement et hedge funds, garantissant une authenticité et une précision rare dans le domaine.

La bande dessinée The Golden Boy est aussi un excellent point de départ pour ceux et celles qui envisagent de postuler dans les banques d’investissement. Elle offre un aperçu réaliste des défis et des opportunités de ce secteur.

Articles du blog SimTrade

Expériences professionnelles

   ▶ All posts about Professional experiences

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

   ▶ Aastha DAS My experience as an investment banking analyst intern at G2 Capital Advisors

   ▶ Mickael RUFFIN My Internship Experience as a Structured Finance Analyst at Société Générale

   ▶ Ziqian ZONG My experience as a Quantitative Investment Intern in Fortune Sg Fund Management

Techniques financières

   ▶ Jayati WALIA Black-Scholes-Merton option pricing model

   ▶ Luis RAMIREZ Understanding Options and Options Trading Strategies

   ▶ Akshit GUPTA Option Greeks – Delta Gamma Vega Theta

Ressources utiles

LinkedIn Vidéo The Golden Boy

A propos de l’auteur

Cet article a été écrit en décembre 2024 par Lucas BAURIANNE (ESSEC Business School, Programme Grande Ecole – Master in Management, 2024-2027).

Sharing my experience during the SimTrade course

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Sharing my experience during the SimTrade course

Lara HADDAD

In this article, Lara HADDAD (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) shares her experience experience with the SimTrade course at ESSEC and how it significantly enhanced her understanding of financial markets, particularly in relation to her internships and career aspirations in finance.

About the SimTrade course

SimTrade is a simulated trading platform that provides a realistic and engaging learning environment for students to explore the complexities of financial markets. It allows participants to develop and test trading strategies, manage portfolios, and analyze market data. The platform covers various asset classes, including equities, bonds, and derivatives, offering a comprehensive overview of financial instruments and trading mechanics. The module is well divided, and we get the chance to explore all the aspects of financial markets with a realistic simulator.

My SimTrade Experience

The SimTrade course provided a practical and hands-on approach to learning about financial markets. I actively participated in simulated trading sessions, managing a virtual portfolio and making investment decisions based on market analysis and research.

The platform’s real-time data and interactive features allowed me to experience the dynamics of market fluctuations and the impact of various economic factors on asset prices. This immersive experience significantly deepened my understanding of financial concepts and strengthened my analytical skills.

I also learned a lot about the impact of real-world events on the price and the health of the market. For instance, in a requested case study, I was able to understand and analyze one of the most dramatic real-time impacts which was seen in the oil markets. In April 2020, West Texas Intermediate (WTI) crude oil futures turned negative for the first time in history. This is because the covid 19 pandemic resulted in the collapse of oil demand as global economic activity stalled.

Crude oil price change
Crude oil price change
Source: the website.

In addition to that, the course allowed me to apply theoretical concepts in a practical setting, deepening my understanding of how economic factors, corporate performance, and investor psychology interact to shape asset prices. This immersive learning experience sparked my curiosity and solidified my interest in pursuing a career in finance, as I realized the power of financial decision-making not just in simulations, but in real-world applications as well.

I now defined the next steps in my career. I am now applying for a master in Finance to enforce my knowledge in the finance world and different aspects of the industry.

Connecting SimTrade to Real-World Finance

The knowledge and skills I gained through SimTrade proved invaluable during my internships. At L’Oréal, I utilized the principles of financial modeling and market analysis learned in SimTrade to analyze market trends and contribute to financial simulations. At Do well do good, the concepts of portfolio diversification and risk management helped me assess the financial feasibility of different startup projects. At SmartStream Technologies, the understanding of trading mechanics and market dynamics gained through SimTrade enhanced my ability to develop and implement sales and marketing strategies for their fintech products.

Three Key Financial Concepts from SimTrade

Portfolio Diversification

SimTrade emphasized the importance of diversifying investments across different asset classes to mitigate risk and optimize returns. This concept proved crucial in my real-world financial analyses.

Technical Analysis

The platform introduced me to various technical indicators and charting techniques used to analyze market trends and predict price movements. This knowledge enhanced my ability to interpret market data and make informed investment decisions.

Fundamental Analysis

SimTrade highlighted the importance of evaluating a company’s financial performance and intrinsic value through fundamental analysis. This skill proved essential in assessing the financial health of companies during my internships.

This SimTrade experience significantly strengthened my financial acumen and provided a solid foundation for my career aspirations in finance. The practical skills and knowledge gained through the platform have been instrumental in my internships and will continue to be valuable assets as I progress in my career.

Useful Resources

SimTrade website

SimTrade courses

SimTrade simulations

Crude oil price change

About the author

The article was written in December 2024 by Lara HADDAD (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024).

My Internship Experience at SmartStream Technologies (Fintech)

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My Internship Experience at SmartStream Technologies (Fintech)

Lara Haddad

In this article, Lara HADDAD (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) shares her experience as a market analyst at SmartStream Technologies.

Presentation of SmartStream Technologies

SmartStream Technologies (often called SmartStream in short) is a global provider of financial transaction management software and managed services. Their flagship product, Transaction Lifecycle Management (TLM®), helps financial institutions streamline their post-trade processing, improve efficiency, and reduce operational risks. They also offer various services that primarily use AI as a tool to facilitate financial transactions and accounting.

Logo of SmartStream Technologies
Logo of SmartStream Technologies
Source: the company.

Presentation of my internship at SmartStream Technologies

During my internship as a Market Analyst in Dubai, I gained a deep understanding of SmartStream Technologies’ fintech products. My key contributions included developing a business plan for “SmartStream Air,” an AI-powered product, and implementing sales and marketing strategies to attract potential clients. I also played a pivotal role in preparing the budget for company events, conducting financial analyses to identify cost-saving opportunities and enhance campaign effectiveness. This experience provided valuable insights into the intersection of technology, finance, and marketing within the fintech industry.

Required skills and knowledge

This internship demanded a combination of technical and interpersonal skills. A strong understanding of financial markets and fintech products was crucial. Analytical skills were necessary for market research and business plan development, while financial modeling skills were used for budgeting and forecasting. Communication and presentation skills were essential for conveying ideas and strategies to stakeholders. Furthermore, problem-solving and critical thinking were vital for navigating the complexities of the fintech landscape and developing innovative solutions. Finally, adaptability and a proactive approach were important for thriving in a fast-paced, technology-driven environment.

What I learned

My internship at SmartStream Technologies provided a deep dive into the world of fintech. I gained practical experience in developing a business plan for a new AI-powered product, which involved market analysis, financial projections, and go-to-market strategy development. I also honed my budgeting and cost analysis skills while preparing for a major event. This experience highlighted the importance of data-driven decision-making and the increasing role of technology in the financial services industry.

Three Key Financial Concepts

I present below three key concepts that I used throughout my internship: budgeting and cost analysis, sales forecasting, and return on investment (ROI).

Budgeting and Cost Analysis

Preparing the event budget required careful planning, cost estimation, and analysis to ensure efficient resource allocation. This experience highlighted the importance of financial control and cost management in achieving project objectives.

Sales Forecasting

Developing sales strategies involved forecasting potential revenue based on market analysis and sales projections. This provided valuable insights into the financial planning process and the importance of accurate forecasting.

Return on Investment (ROI)

Analyzing the effectiveness of marketing campaigns required measuring the return on investment to assess the financial impact of marketing spend. This experience emphasized the importance of data-driven decision-making and performance measurement.

Why should I be interested in this post?

This post is highly relevant for ESSEC students interested in fintech, financial product management, or technology-driven finance roles. It demonstrates how financial skills can be combined with an understanding of technology to drive innovation and growth in the financial services sector. The experience of developing a business plan, implementing marketing strategies, and managing a budget provides valuable practical skills applicable to a wide range of finance-related careers. This type of internship can be a stepping stone to exciting opportunities in the rapidly evolving fintech landscape.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ My experience as a junior market research analyst at Procolombia

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful Resources

smartstream air

About the author

The article was written in December 2024 by Lara HADDAD (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024).

My Internship Experience as a Market Analyst at L’Oréal

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My Internship Experience as a Market Analyst at L’Oréal

Lara Haddad

In this article, Lara HADDAD (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) shares her experience as a Market Analyst intern with L’Oréal Group. My six-months internship, which was a part of my Global BBA program at ESSEC was a great opportunity to discover a new industry in a big company. The diversification of the missions and the focus on financial analyses of different brands motivated me to start this internship.

Presentation of the Company

L’Oréal, founded in 1909, reigns as the world’s largest cosmetics company. With a diverse portfolio encompassing hair color, skincare, sun protection, make-up, perfume, and hair care, L’Oréal’s success stems from a dual focus: developing innovative products and cultivating strong customer relationships. This approach necessitates a workforce adept at both scientific research and market analysis.

L’Oréal brands
L’Oréal brands
Source: the website.

Presentation of my Internship

As a Market Analyst Intern at L’Oréal’s Global Headquarters in Paris, I delved into the intricacies of the MENA market. My missions included conducting sell-in and sell-out analyses, crafting customer-specific reports, analyzing channel performance and competition (including online and offline channels), and contributing to volume build-up reports and financial simulations, notably GM% modeling. I also worked on establishing the budget of next quarter based on the budget of last year and the performance of the different brands and how the expenses were divided.

These tasks demanded proficiency in data analysis, financial modeling, market research, and a keen understanding of regional market dynamics. I honed these skills while also developing a strong understanding of how financial data informs strategic decision-making within a global corporation.

I was able to develop various analytical, problem solving, financial skills as well as human soft skills thanks to the team work and constant communication I had with my teammates.

Required skills and knowledge

My role at L’Oréal required strong analytical skills to interpret market data, identify trends, and draw meaningful conclusions. Financial modeling and proficiency in Excel were essential for building forecasts and simulations. Presentation skills were vital for communicating findings to the team, while attention to detail ensured accuracy in reports and analyses. Collaboration and communication were key for working effectively within the team and with other departments. Finally, an understanding of the cosmetics industry and market dynamics was beneficial for contextualizing my analysis.

What I learned

I gained a comprehensive understanding of the cosmetics industry, particularly within the MENA market. I honed my analytical skills by working with real market data and learned how to translate complex information into actionable insights. Developing financial models and contributing to strategic decision-making provided practical experience relevant to corporate finance roles. Working within a global corporation like L’Oréal also gave me valuable insights into the complexities of international business and the importance of cross-cultural collaboration.

Three Key Financial Concepts

I present below three key concepts that I used throughout my internship: gross margin, financial modeling, and market analysis.

Gross Margin

Gross Margin Percentage (GM%) is a metric, central to my internship, which reveals the profitability of a product after deducting the cost of goods sold. Analyzing GM% allowed me to assess the financial health of different product lines and contribute to pricing strategies. My team was responsible of three main brands and we would do this monthly analysis on these brands to establish what is going on in the market and what can be fixed.

Financial Modeling

Building financial models based on market data and trends was crucial for forecasting future performance and informing investment decisions. This experience provided valuable insights into how companies use financial projections to guide their strategies.

Market Analysis

Understanding market dynamics, consumer behavior, and competitive landscapes is essential for financial success. My internship provided hands-on experience in analyzing these factors and their impact on financial performance.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Fatimata KANE My internship experience as a marketing intern at Amazon

   ▶ Jérémy PAULEN My Marketing Developer Experience

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful Resources

L’Oréal Finance

L’Oréal careers

About the author

The article was written in December 2024 by Lara HADDAD (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024).

My Experience at Do well do good ESSEC Program

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My Experience at Do well do good ESSEC Program

Lara Haddad

In this article, Lara HADDAD (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) shares her experience as a business analyst in partnership with ESSEC at Do well do good (Formerly ShARE) ESSEC Program. I was able to work with different startups from different industries to better recommend solutions to their problems.

Presentation of the Company

Do well do good is a management consulting NGO partnering with universities worldwide. Its mission is to empower startups with the strategic guidance and resources needed to achieve sustainable growth and profitability. This involves a diverse range of consulting services, including market analysis, financial planning, and strategic development.

Logo of dwdg.
Logo of dwdg
Source: the company.

Presentation of my Internship

My role as a Business Analyst involved supporting three French startups: Lattice Medicine (B2B medical devices), Mendo (AI tool), and Luko (insurance services). My responsibilities ranged from conducting benchmarking and cost optimization analyses for Lattice Medicine to developing market entry strategies for Mendo and improving profitability for Luko through pricing and customer acquisition/retention strategies. This experience required strong analytical skills, financial acumen, and the ability to adapt to the unique challenges of different industries. I learned how financial analysis and strategic planning are intertwined in driving business success, particularly for startups. It was a way for me to combine my passion for finance and strategy to achieve a specific objective. It was particularly interesting to discover new industries and work with experts in the field.

Required skills and knowledge

This experience demanded a blend of hard and soft skills. Hard skills included financial modeling, market analysis, and proficiency in Microsoft Excel for data manipulation and presentation. Equally crucial were soft skills like communication, as I constantly interacted with startup founders and team members. Adaptability was essential to navigate the diverse challenges of different industries, while problem-solving and decision-making skills were key to developing effective solutions for each startup. Finally, time management was crucial to juggle multiple projects simultaneously and meet deadlines.

What I learned

I learned a lot from this experience because it provided me invaluable hands-on experience in applying financial and strategic concepts to real-world business challenges. I gained a deeper understanding of the startup ecosystem, learned how to conduct thorough market research, and developed my financial modeling skills. Working with diverse startups broadened my industry knowledge and honed my ability to adapt quickly to different business models and needs. Perhaps most importantly, I learned the importance of collaboration and communication in a consulting environment.

Three Key Financial Concepts

I present below three key concepts that I used throughout my internship: cost optimization, market penetration, and profitability analysis.

Cost Optimization

Identifying and implementing strategies to reduce costs without compromising quality was a key focus of my work with Lattice Medicine. This involved analyzing expenses, exploring alternative solutions, and developing efficient processes.

Market Penetration

Developing a successful market entry strategy for Mendo required a deep understanding of target markets, competitive landscapes, and financial feasibility. This involved conducting market research, financial projections, and risk assessments.

Profitability Analysis

Improving Luko’s profitability involved analyzing pricing models, customer acquisition costs, and retention rates. This experience highlighted the importance of understanding key financial drivers and their impact on overall business performance.

Why should I be interested in this post?

For ESSEC students interested in finance, this post offers a glimpse into the world of consulting, particularly within the dynamic startup landscape. It demonstrates how core financial skills can be applied to help businesses grow and succeed. The experience of working with multiple startups across different industries is highly valuable for anyone considering a career in financial advisory, venture capital, or entrepreneurship. This type of program can provide a strong foundation for future roles requiring financial analysis, strategic thinking, and problem-solving.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Mickael RUFFIN My Internship experience as a Strategy Consultant at Devlhon Consulting

   ▶ Snehasish CHINARA My Experience as an External Junior Consultant with Eurogroup Consulting

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful Resources

dwdg Program future leaders

About the author

The article was written in December 2024 by Lara HADDAD (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024).

Chapter 7 Bankruptcies: A Strategic Insight on Liquidations

by
Snehasish CHINARA In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2025) delves into the intricacies of bankruptcy laws, focusing on the pivotal role of Chapter 7 in the United States. This legal framework governs the liquidation process, providing a structured approach for businesses facing severe financial distress. By examining the purpose, procedures, and strategic implications of Chapter 7, this post sheds light on how firms navigate debt management and financial recovery.

Bankruptcy Basics

Bankruptcy is often perceived as a last resort for struggling businesses, a measure taken when all other avenues for debt resolution have been exhausted. However, for businesses of all sizes, understanding bankruptcy is crucial—not only as a potential safeguard but as a strategic consideration in financial planning and risk management. This knowledge becomes increasingly important in today’s volatile global economy, where the financial resilience of a business can determine its survival and growth.

Legal Definition and Purpose of Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” is a legal process under the U.S. Bankruptcy Code that allows individuals and businesses to discharge most of their unsecured debts by liquidating non-exempt assets.

The purpose of Chapter 7 – Liquidation is two fold:

  • To provide a “fresh start” for debtors who are unable to repay their debts by eliminating the legal obligation for most outstanding liabilities.

  • To maximize recovery for creditors by selling the debtor’s assets and distributing the proceeds according to a court-approved priority system.

Chapter 7 bankruptcy is widely used when a business is unable to operate profitably or lacks the means to restructure effectively. Chapter 7 typically results in the complete closure of a business, with its assets sold off to repay creditors, as opposed to reorganization under Chapter 11. Below is a detailed breakdown of the Chapter 7 process, implications, and a real-world case study to provide further insight.

Eligibility Criteria: To file under Chapter 7, a business or individual must demonstrate insolvency, where liabilities exceed assets. However, certain entities, such as governmental units and banks, are ineligible and must pursue other legal avenues if insolvent.

This type of bankruptcy is typically used by businesses that are no longer viable or individuals with limited income and substantial debts. Unlike Chapter 11 or Chapter 13 bankruptcies, Chapter 7 does not involve a repayment plan, and businesses filing under Chapter 7 usually cease operations. The process is overseen by a court-appointed trustee, who is responsible for liquidating the debtor’s non-exempt assets, paying creditors, and ensuring compliance with bankruptcy laws.

Figure 1. Number of Chapter 7 Bankruptcy Filings (2013-2022)

Number of Chapter 7 Bankruptcy Filings (2013-2022

Source: computation by the author (data: US Courts Statistics).

Common Causes of Business Bankruptcy

Chapter 7 bankruptcy, or liquidation bankruptcy, is often the final step for businesses unable to overcome financial distress. One major cause is excessive debt, where high liabilities outpace a company’s ability to generate income, as seen with Circuit City. Similarly, declining revenues and changing market demand, like in the case of Toys “R” Us, can leave businesses unable to cover costs.

Poor financial management and high fixed costs, such as rent and payroll, exacerbate financial strain, especially during economic downturns or external shocks like the COVID-19 pandemic. Legal liabilities, such as lawsuits or fines, can also overwhelm a business, forcing liquidation.

Companies failing to adapt to technological disruption, like Blockbuster, or those affected by supply chain issues, risk bankruptcy as they lose competitive footing. Additionally, overexpansion without proper financial controls often depletes resources, leading to insolvency.

Chapter 7 highlights the importance of managing debt, adapting to market changes, and planning for risks to avoid liquidation and ensure business longevity.

  • Excessive Debt and Overleveraging: Businesses with high levels of debt relative to income often struggle to meet financial obligations, especially if revenue declines. Excessive borrowing, particularly during growth phases, can leave companies vulnerable during economic downturns.

  • Declining Revenues and Market Demand: A sustained drop in sales or market demand, often due to changing consumer preferences, technological disruption, or increased competition, can cripple a business. With insufficient revenue, businesses cannot cover fixed costs like rent, utilities, and payroll.

  • Poor Financial Management: Mismanagement of finances, such as inadequate cash flow planning, overinvestment in non-essential assets, or failing to monitor costs, can lead to insolvency. Companies that lack strong financial controls often find themselves unable to weather financial challenges.

  • Economic Downturns and External Shocks: Recessions, pandemics, or unexpected global events can sharply reduce demand, disrupt supply chains, or increase operational costs. Businesses with thin margins or limited reserves are particularly vulnerable.

  • Legal Liabilities and Litigation: Lawsuits, regulatory fines, or liability claims can create sudden and overwhelming financial burdens for businesses. Legal judgments can lead to asset seizures, leaving businesses unable to continue operations.

  • High Fixed Costs and Low Profit Margins: Businesses with high fixed costs (e.g., rent, utilities, long-term leases) and narrow profit margins are especially vulnerable to revenue fluctuations. Even small declines in income can create large deficits, leading to insolvency.

  • Technological Disruption: Companies that fail to adapt to technological advancements or changing industry practices often lose competitiveness, leading to financial decline. Industries undergoing rapid innovation can quickly make certain business models obsolete.

  • Lack of Access to Financing: Businesses that cannot secure financing or additional credit to address cash flow issues often resort to Chapter 7. Inability to refinance debt or raise capital can leave businesses unable to meet obligations.

  • Supply Chain Issues: Disruptions in the supply chain, such as rising costs, delays, or shortages, can increase expenses or reduce product availability, causing financial distress. This is particularly true for businesses reliant on just-in-time inventory systems.

  • Overexpansion: Rapid expansion without sufficient market analysis or operational capacity often leads to cash flow issues and increased debt. Overestimating demand or investing heavily in new locations can stretch resources thin.

Key Steps in a Chapter 7 Filing

  • Filing the Petition – The bankruptcy process begins with the debtor filing a Chapter 7 petition in federal bankruptcy court. This petition includes a comprehensive list of all assets, liabilities, income, expenses, and a statement of financial affairs. By filing, the business immediately gains protection from creditors under an automatic stay, preventing further collection actions.

  • Appointment of a Trustee – After the petition, the court appoints a bankruptcy trustee to oversee the liquidation. The trustee’s role includes managing the debtor’s estate, reviewing asset and liability documentation, and identifying assets eligible for liquidation. The trustee is also responsible for maximizing asset recovery to distribute funds to creditors fairly.

  • Asset Liquidation and Debt Discharge – The trustee liquidates the non-exempt assets of the business, such as inventory, equipment, and property. Assets are prioritized based on secured and unsecured creditor claims, following a hierarchy established by bankruptcy law. Generally, secured creditors are paid first, followed by priority and unsecured creditors. In most cases, unsecured creditors recover only a fraction of their claims—often below 10%—due to limited available assets. Once assets are distributed, the business’s unsecured debts are discharged, meaning the company is no longer obligated to repay them. This final step formally closes the business, and the entity is typically dissolved.

Implications for Businesses and Creditors

The following are the implications for the businesses and other stakeholders as a result of Chapter 7 bankruptcies –

Pros:

  • Debt Relief: Business owners are released from most unsecured debts, allowing them to move forward without remaining financial burdens from the insolvent entity.

  • Simplified Process: Chapter 7 is relatively fast and straightforward compared to Chapter 11, typically concluding within 3-6 months. This timeframe provides a more immediate resolution for both owners and creditors.

  • Lower Costs: With less need for ongoing legal and operational expenses, Chapter 7 is more cost-effective.

Cons:

  • Loss of Control: Business owners lose all control of the entity and its assets once the trustee is appointed, limiting their role in decision-making and asset management.

  • No Future Operations: Chapter 7 results in the closure of the business, removing the opportunity for restructuring or reorganization.

  • Negative Credit Impact: Owners may face challenges in securing future financing due to the adverse impact on their credit.

Circuit City – A Lesson in Chapter 7 Bankruptcy

Background

Circuit City, founded in 1949, was once a leading electronics retailer in the United States, with over 700 stores and 34,000 employees at its peak. The company was renowned for its innovative approach to retail and customer service, being among the first to adopt superstore formats for consumer electronics. However, by the late 2000s, Circuit City found itself struggling in an increasingly competitive market.

Causes of Financial Collapse

Circuit City’s road to Chapter 7 bankruptcy was marked by several critical missteps and external pressures:

Strategic Mismanagement:

The company attempted to cut costs by eliminating 3,400 of its most experienced sales associates in 2007. This move alienated customers, as less knowledgeable staff were unable to provide the high-quality service that was a hallmark of Circuit City’s brand.

Circuit City also failed to embrace e-commerce aggressively, losing significant market share to competitors like Amazon and Best Buy.

  • Economic Pressures: The 2008 financial crisis led to a sharp decline in consumer spending, particularly on non-essential items like electronics. Circuit City, already facing financial strain, was hit hard by reduced foot traffic and declining revenues.

  • Overexpansion and High Fixed Costs: The company had expanded aggressively, opening numerous stores that failed to generate sufficient revenue. This left Circuit City burdened with high lease costs and operational expenses.

  • Poor Inventory Management: Circuit City struggled with inventory issues, frequently stocking items that were outdated or not in demand. This created significant inefficiencies in cash flow and customer satisfaction.

Filing for Bankruptcy

On November 10, 2008, Circuit City filed for Chapter 11 bankruptcy, intending to restructure its debts and remain operational. However, the reorganization efforts failed for several reasons:

  • The company was unable to secure adequate financing to support operations during the bankruptcy process.

  • Suppliers became wary of Circuit City’s ability to pay and began restricting credit terms, creating inventory shortages during the crucial holiday shopping season.

  • Attempts to find a buyer or merger partner were unsuccessful.

By January 16, 2009, Circuit City announced it would close all its remaining stores and transition to Chapter 7 bankruptcy. The decision marked the end of Circuit City’s 60-year legacy.

The Liquidation Process

Under Chapter 7, a court-appointed trustee oversaw the liquidation of Circuit City’s assets. Key steps included:

  • Selling Inventory: The company conducted massive clearance sales, liquidating its electronics stock at deep discounts.

  • Auctioning Real Estate: Store leases and properties were auctioned to recover funds for creditors.

  • Distributing Proceeds: Proceeds from the liquidation were distributed to creditors based on bankruptcy priority rules:

    • Secured Creditors: Received most of the proceeds, as their claims were backed by collateral (e.g., store leases, equipment).

    • Unsecured Creditors: Received only a small fraction of their claims, reflecting the risks of unsecured lending.

    • Shareholders: As is typical in Chapter 7 cases, shareholders received nothing.

Impact on Stakeholders

  • Employees: Over 34,000 employees lost their jobs, highlighting the human cost of liquidation bankruptcies. Many workers did not receive severance pay, sparking debates about labour protections in bankruptcy law.

  • Suppliers: Circuit City’s failure left many suppliers with unpaid invoices, creating ripple effects throughout the electronics supply chain.

  • Competitors: Circuit City’s exit from the market allowed competitors like Best Buy to capture a larger share of the consumer electronics market, reinforcing the importance of strategic agility in competitive industries.

Lessons Learned

The Circuit City case offers valuable lessons for students and professionals analysing Chapter 7 bankruptcies:

  • Customer Experience Matters: Cost-cutting measures that compromise customer satisfaction can have long-term consequences, especially in competitive industries.

  • Adaptation is Crucial: Failure to embrace e-commerce and innovate in response to changing consumer preferences sealed Circuit City’s fate.

  • Cash Flow is King: Poor inventory management and inability to secure financing during bankruptcy underscored the importance of liquidity for survival.

  • Chapter 7 as a Last Resort: Circuit City’s transition from Chapter 11 to Chapter 7 illustrates the challenges of restructuring without a strong operational and financial foundation.

Why Should I Be Interested in This Post?

Understanding Chapter 7 bankruptcy is crucial for anyone pursuing a career in finance, business strategy, or law. This post explores the mechanics of liquidation bankruptcy, shedding light on how businesses resolve insolvency and its impact on creditors, employees, and the economy. It provides insights into the strategic decisions driving liquidation under Chapter 7, equipping readers to analyze distressed scenarios and develop a critical perspective on financial risk and recovery strategies.

Moreover, expertise in bankruptcy law opens doors to specialized fields such as turnaround consulting, distressed asset investing, and insolvency law. As global markets increasingly adopt frameworks similar to Chapter 7, this knowledge is highly transferable, offering opportunities to navigate insolvency cases across international markets. Whether you aim to excel in credit analysis, investment banking, or corporate restructuring, this post offers valuable lessons to enhance your strategic and financial acumen.

Related posts on the SimTrade blog

   ▶ Snehasish CHINARA Chapter 7 vs Chapter 11 Bankruptcies: Insights on the Distinction between Liquidations & Reorganisations

   ▶ Akshit GUPTA The bankruptcy of Lehman Brothers (2008)

   ▶ Akshit GUPTA The bankruptcy of the Barings Bank (1996)

   ▶ Anant JAIN Understanding Debt Ratio & Its Impact On Company Valuation

Useful resources

US Courts Data – Bankruptcy

S&P Global – Bankruptcy Stats

Statista – Bankruptcy data

About the author

The article was written in August 2023 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2025).

Chapter 7 vs Chapter 11 Bankruptcies: Insights on the Distinction between Liquidations & Reorganizations

by
Snehasish CHINARA In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2025) explores the complexities of Chapter 7 and Chapter 11 bankruptcy laws in the United States, examining how these legal processes impact businesses facing financial distress. With insights into liquidation (Chapter 7) and reorganization (Chapter 11), this post provides a detailed overview of each chapter’s purpose, process, and strategic implications, offering valuable lessons in managing debt and financial recovery.

Bankruptcy Basics

Bankruptcy is often perceived as a last resort for struggling businesses, a measure taken when all other avenues for debt resolution have been exhausted. However, for businesses of all sizes, understanding bankruptcy is crucial—not only as a potential safeguard but as a strategic consideration in financial planning and risk management. This knowledge becomes increasingly important in today’s volatile global economy, where the financial resilience of a business can determine its survival and growth.

Bankruptcy is a legal framework that helps individuals and businesses unable to meet their financial obligations. When a company files for bankruptcy, it either seeks to reorganize its debts and operations or liquidate its assets to repay creditors, depending on the type of bankruptcy pursued (Chapter 7 or Chapter 11 procedures in US bankruptcy law). Over 30,000 businesses filed for bankruptcy in the US in 2023, demonstrating the critical role this process plays in managing corporate distress. Bankruptcy can offer a pathway to stability, enabling companies to mitigate debt burdens, restructure, and potentially preserve jobs.

    1. General Motors (2009) – Corporate Example

  • Background: General Motors (GM), one of the largest automobile manufacturers, faced a severe financial crisis in 2009. With declining sales, a massive debt load, and high operational costs, GM was unable to meet its financial obligations.

  • Bankruptcy Filing: GM filed for Chapter 11 bankruptcy to reorganize its debts. Through the bankruptcy framework, GM was able to reduce its liabilities, renegotiate labour contracts, and streamline operations, ultimately emerging as a more financially sustainable company.

  • Outcome: The bankruptcy framework allowed GM to reorganize its operations and avoid liquidation, protecting jobs and enabling it to continue as a key player in the automotive industry.

    • 2. Lehman Brothers (2008) – Corporate Example

  • Background: Lehman Brothers, a global financial services firm, was heavily leveraged and exposed to subprime mortgage debt. When the real estate market collapsed, Lehman was unable to meet its debt obligations.

  • Bankruptcy Filing: Lehman filed for Chapter 11 bankruptcy, marking one of the largest corporate bankruptcies in history. The legal framework allowed Lehman to begin asset liquidation and distribute proceeds to creditors under court supervision.

  • Outcome: Though Lehman did not emerge as a reorganized company, the bankruptcy framework facilitated an orderly process for winding down the firm and managing creditor claims, preventing a more chaotic collapse.

    • 3. Curtis James Jackson III (50 Cent) – Personal Bankruptcy Example

  • Background: The rapper and entrepreneur Curtis Jackson (known as 50 Cent) filed for Chapter 11 bankruptcy in 2015 after facing lawsuits and substantial debts he could not pay.

  • Bankruptcy Filing: Chapter 11 allowed Jackson to reorganize his debts without liquidating his assets entirely. He was able to negotiate repayment terms with creditors while continuing his business ventures.

  • Outcome: Through the bankruptcy framework, Jackson completed a reorganization plan, ultimately repaying creditors over time and successfully emerging from bankruptcy while preserving his business interests.

Figure 1. Number of Chapter 7 (Liquidation) & Chapter 11 (Reorganisation) 2013 – 2022

Source: US Courts Data (Computation by Author).

Legal Definition and Purpose

The U.S. Bankruptcy Code is a comprehensive set of federal laws enacted to provide a legal framework for bankruptcy filings. It is codified in Title 11 of the United States Code and governs all bankruptcy cases in the country, with different chapters addressing various types of financial distress.

The Code’s objectives include ensuring a fair distribution of the debtor’s assets among creditors, offering a fresh start to debtors, and establishing a structured process for both liquidation and reorganization. The Bankruptcy Code covers everything from the types of bankruptcy filings available to the specific steps and criteria needed for each process. All bankruptcy cases are overseen by federal bankruptcy courts, with judges responsible for ensuring compliance with the Code and adjudicating disputes between debtors and creditors.

Legally, bankruptcy is a federal judicial process governed by the U.S. Bankruptcy Code, which provides the framework to address insolvent companies’ financial liabilities. The primary purposes of bankruptcy law are:

  • Fair and Equitable Treatment of Creditors: Bankruptcy law ensures that creditors are repaid as fairly as possible based on their claims and priorities.

  • Relief and Protection for the Debtor: Filing for bankruptcy gives businesses temporary relief from creditor actions, such as lawsuits and collections, allowing them to reorganize or liquidate assets without external pressure.

  • Rehabilitation or Exit from Market: Depending on the situation, bankruptcy provides businesses with the opportunity to restructure and regain stability or exit the market responsibly.

In practice, bankruptcy serves as both a shield and a tool, giving companies the time and resources to evaluate and act on their financial situation in a structured manner.

Common Causes of Business Bankruptcy

Businesses typically face bankruptcy due to a mix of internal and external factors. Key factors include:

  • Poor Financial Management: Mismanagement of finances, including high debt levels and inadequate cash flow, is a primary cause. About 50% of small businesses fail within the first five years, often due to financial missteps.

  • Economic Downturns: Recessions and economic instability can severely impact sales and profit margins, leaving companies unable to meet their financial obligations. The COVID-19 pandemic saw a 20% increase in business bankruptcies in specific sectors, especially retail and hospitality.

  • High Debt Obligations: When companies rely too heavily on borrowed capital, downturns can leave them unable to service their debt, resulting in financial distress.

  • Industry Disruptions: Changes in technology and consumer preferences can render a business model obsolete, pushing companies toward bankruptcy. For example, retailers like Sears and J.C. Penney filed for bankruptcy as online shopping trends transformed the retail landscape.

  • Legal and Regulatory Challenges: Companies in highly regulated industries, such as healthcare and finance, may face significant legal and compliance costs, which can lead to bankruptcy if they are not adequately prepared.

Differences between Chapter 7 & Chapter 11 Bankruptcies

The table below presents the differences between Chapter 7 (liquidation) and Chapter 11 (reorganization) procedures in the US bankruptcy law:

Table 1. Chapter 7 (liquidation) and Chapter 11 (reorganization) procedures in the US bankruptcy law

Source: US Courts

When to opt for Liquidation (Chapter 7) vs. Reorganization (Chapter 11)

Choosing between Chapter 7 liquidation and Chapter 11 reorganization is a pivotal decision for distressed businesses. This choice hinges on various strategic, financial, and operational factors that impact not only the business’s future but also creditors, employees, and shareholders.

Liquidation (Chapter 7)

Ideal Situations for Liquidation:

  • No Path to Profitability: If a business has no viable path to profitability due to declining industry demand, obsolete products, or irreparable operational inefficiencies, Chapter 7 might be the optimal choice. For example, Circuit City, a major electronics retailer, filed for Chapter 7 in 2009 after failing to adapt to e-commerce trends. With revenue losses of nearly 20% year-over-year and no viable turnaround options, liquidation was chosen to maximize asset value.

  • Severe Debt Burden: When a business’s debt load is unsustainable and far exceeds its asset value, liquidation might offer the highest recovery rate for creditors. Companies in this position often have debts that are difficult to renegotiate, and without sufficient cash flow to cover interest and principal payments, they are left with no restructuring options.

  • Asset-Heavy Businesses: Companies with valuable physical assets may benefit more from Chapter 7, where assets like real estate, equipment, and inventory can be sold to partially satisfy creditors. For instance, Toys “R” Us converted to Chapter 7 in 2018, liquidating $1 billion in inventory and assets to repay secured creditors when reorganization proved unfeasible.

Advantages of Chapter 7:

  • Speed of Resolution: Chapter 7 cases typically conclude within 3 to 6 months, allowing for a quicker closure and reducing prolonged financial strain.

  • Lower Costs: Compared to Chapter 11, Chapter 7 has lower administrative and legal fees, with an estimated cost between $20,000 and $50,000 for small to medium-sized businesses, whereas Chapter 11 often involves significant legal expenses.

Reorganization (Chapter 11)

Ideal Situations for Reorganisation:

  • Operational Viability: If a business has strong core operations but is experiencing temporary financial setbacks, Chapter 11 reorganization allows for restructuring while continuing operations. American Airlines, which filed for Chapter 11 in 2011 with over $40 billion in liabilities, was able to reduce labour costs, restructure debt, and emerge stronger through a merger with US Airways.

  • Need for Asset Preservation: Businesses with valuable intangible assets, such as patents, brands, or customer relationships, can benefit from Chapter 11 to maintain their brand value and market share. Hertz, the global rental car giant, used Chapter 11 in 2020 to retain its market position and shed $5 billion in debt while reorganizing, eventually re-emerging with a stronger balance sheet.

  • Possibility of Financing and Restructuring: Companies that can attract post-petition financing and renegotiate debts stand a better chance in Chapter 11. Lenders are often more willing to provide financing if the company has a solid plan and ongoing revenue streams. For instance, General Motors secured $30 billion in federal aid during its 2009 Chapter 11 process, allowing it to restructure and continue operations.

Advantages of Chapter 11:

  • Long-Term Viability: Chapter 11 provides companies with the time and flexibility to reorganise their debts and adjust operations, potentially leading to sustainable profitability.

  • Creditor Negotiation: Chapter 11 allows debtors to negotiate with creditors for more favourable repayment terms, often resulting in higher recovery rates for unsecured creditors compared to Chapter 7.

Case Study: Toys “R” Us

In 2018, the iconic toy retailer Toys “R” Us filed for Chapter 7 bankruptcy, transitioning from an initial Chapter 11 reorganization filing. The bankruptcy marked one of the most significant retail closures in recent history, affecting 33,000 employees and closing over 700 stores in the U.S. alone.

Background and Context

Company Overview:

  • Founded: 1948

  • Industry: Retail (Specialty Toy and Baby Products)

  • Global Reach: Operated over 1,600 stores worldwide at its peak, including over 700 stores in the U.S.

  • Legacy: Toys “R” Us was one of the largest toy retailers globally and an iconic brand for several generations.

Financial Background:

  • Debt Load: Carried approximately $5 billion in debt, primarily from a leveraged buyout (LBO) in 2005 by private equity firms. This debt created a significant financial burden, consuming profits and limiting the company’s ability to reinvest in modernization efforts.

  • Revenue Pressures: Struggled to compete with e-commerce giants like Amazon and low-cost retailers like Walmart, which offered competitive pricing and convenience.

Initial Bankruptcy Filing (Chapter 11):

  • Date: September 2017

  • Objective: The initial Chapter 11 filing was intended to restructure debts and revive the company’s operations. Toys “R” Us aimed to reduce its debt load and improve liquidity to invest in a digital presence and update store experiences.

  • Challenges: Despite the plan, Toys “R” Us could not generate sufficient revenue to cover operational and restructuring costs due to stiff online competition, seasonal sales dependency, and lack of investor confidence.

Transition to Chapter 7 (Liquidation)

Reasons for Conversion:

  • Failed Restructuring: By early 2018, the restructuring under Chapter 11 was unsuccessful. The company faced critical cash flow issues and was unable to secure the financing needed to support the reorganization.

  • Market Challenges: The rise of e-commerce, coupled with consumer preferences shifting away from physical stores, reduced Toys “R” Us’s competitive advantage and viability.

  • Debt Burden: Servicing a high debt load further strained finances, with Toys “R” Us spending millions annually in interest payments, limiting funds available for reinvestment.

Decision:

  • Date: March 2018

  • Outcome: Toys “R” Us officially filed for Chapter 7, leading to the closure and liquidation of its U.S. stores and operations. The transition marked the end of its efforts to survive as a going concern.

The Liquidation Process

Role of the Trustee:

A trustee was appointed to oversee the liquidation of Toys “R” Us’s assets. The trustee’s duties included identifying and valuing assets, conducting sales, and distributing proceeds to creditors based on a priority system.

Assets Liquidated:

  • Inventory and Merchandise: All remaining toy inventory and other merchandise were liquidated through clearance sales.

  • Real Estate: Store leases and property rights were sold, with some locations acquired by competitors or other businesses.

  • Intellectual Property: The “Toys “R” Us” brand, Geoffrey the Giraffe mascot, and other trademarks were sold to generate additional revenue.

Outcome:

  • Total Proceeds: The liquidation generated approximately $1 billion, but this amount was insufficient to cover the $5 billion debt load fully.

  • Creditors’ Recovery: Due to the liquidation hierarchy:

    • Secured Creditors: Received a higher percentage of their claims, as their loans were backed by collateral.

    • Unsecured Creditors: Recovered less than 5% of their initial investments, reflecting the typical outcome for unsecured claims in Chapter 7 cases.

Impact on Stakeholders

  • Employees: Approximately 33,000 employees lost their jobs, sparking national debates on the treatment of workers in corporate bankruptcies. Many workers did not receive severance pay, leading to calls for legislative reform in corporate bankruptcy processes.

  • Suppliers and Partners: Suppliers faced unpaid invoices and significant losses due to the liquidation. The bankruptcy also created ripple effects in the toy industry, impacting toy manufacturers reliant on Toys “R” Us as a major retailer.

  • Community and Local Economy: The closure of over 700 stores in the U.S. led to economic downturns in local communities, where Toys “R” Us had served as a major employer and contributor to commercial activity.

Key Lessons and Takeaways

1. High Leverage Risks:

  • The leveraged buyout in 2005 saddled Toys “R” Us with an unsustainable debt load, diverting critical funds toward interest payments instead of innovation and digital transformation.

  • Insight: Businesses in highly competitive industries should maintain manageable debt levels, particularly when rapid market shifts (like e-commerce growth) threaten traditional business models/

2. Market Adaptation and Innovation:

  • Toys “R” Us struggled to adapt to changing consumer behaviour, as shoppers increasingly turned to online platforms. The failure to invest in e-commerce further weakened the company’s market position.

  • Insight: Businesses must continuously invest in technology and customer experience to remain relevant, particularly in the retail sector where consumer preferences shift rapidly.

3. Stakeholder Impact in Chapter 7:

  • The liquidation resulted in minimal recoveries for unsecured creditors and severe job losses, highlighting the often-painful impact of Chapter 7 on stakeholders.

  • Insight: Chapter 7 filings may serve as a stark reminder for stakeholders about the importance of financial due diligence and credit protections when engaging with highly leveraged companies.

4. Corporate Governance and Accountability:

  • The Toys “R” Us case spurred debates on corporate governance, particularly regarding the responsibilities of private equity owners in highly leveraged companies. Questions were raised about whether the company could have been saved with better financial management.

  • Insight: Effective corporate governance, with a focus on sustainable financing and operational resilience, is essential for long-term business health.

Why Should I Be Interested in This Post?

Understanding bankruptcy is essential for students pursuing careers in finance, consulting, corporate strategy, or law. It provides valuable insights into risk management, financial restructuring, and strategic decision-making, equipping you to navigate complex financial scenarios.

This post enhances your strategic awareness by explaining the frameworks behind liquidation versus reorganization decisions, sharpens your financial acumen to assess distress and recovery strategies, and highlights career opportunities in fields like restructuring and distressed asset investing. With a global perspective, it also offers knowledge transferable across interconnected markets, preparing you for specialized roles in today’s dynamic economy.

Related posts on the SimTrade blog

   ▶ Akshit GUPTA The bankruptcy of Lehman Brothers (2008)

   ▶ Akshit GUPTA The bankruptcy of the Barings Bank (1996)

   ▶ Anant JAIN Understanding Debt Ratio & Its Impact On Company Valuation

Useful resources

US Courts Data – Bankruptcy

S&P Global – Bankruptcy Stats

Statista – Bankruptcy data

About the author

The article was written in August 2023 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2025).

Real-Time Risk Management in the Trading Arena

by

Real-Time Risk Management in the Trading Arena

Vardaan CHAWLA

In this article, Vardaan CHAWLA (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2020-2023) shares a case study on real-time risk management in the trading arena.

As an individual investor venturing into the dynamic world of financial markets, it’s crucial to understand and implement effective risk management strategies. The following article, explores the key principles and techniques to safeguard your investments and navigate the potential risks.

Financial markets are very dynamic, interesting, and filled with opportunities and risks. Learning to manage risks in the always-changing world of financial markets is crucial. In the following article I discuss the effective methods to manage, navigate, and avoid risk while dealing in financial markets to help you make informed decisions and safeguard your money.

Understanding Your Risk Tolerance

The first principle of effective risk management is self-awareness. Before diving into financial markets one must assess one’s own risk tolerance meaning the amount of losses you are able to manage comfortably.

Ask yourself critical questions:

  • How much capital can I realistically afford to lose?
  • How would a significant loss impact my financial well-being?
  • Am I prone to emotional decision-making during market fluctuations?

After answering these questions you can start making your trading and risk management strategies and techniques. A very aggressive investor will be open to taking a high amount of risk with more potential results while a conservative investor will be the opposite, low risk with less potential returns. One must invest based on their own loss tolerance.

Core Risk Management Strategies

Once you understand your risk tolerance, equip yourself with these key risk management strategies:

  • Position Sizing: This describes how much capital is devoted to a specific deal. Starting small is a vital notion, particularly for novices. A typical place to start is with 1% to 2% of your entire portfolio for each deal. With a diversified portfolio, you can progressively raise position size as your experience and risk tolerance permits.
  • Stop-Loss: Stop orders are vital instruments for safeguarding your investment. To limit potential losses if the market swings against your position, a stop-loss order automatically sells an asset when the price hits a predefined level (lower than the current market price). It’s critical to create stop-loss levels that balance possible asset recovery with risk minimization.
  • Take Profit: Limit orders work similarly to stop-loss orders in that they automatically lock in profits by selling an asset when the price hits a predefined level (higher than the current market price). This lessens the chance of losing gains if the market turns south. To safeguard your earnings and resist the need to cling to a winning position for too long, use take-profit orders wisely.
  • Diversification: Avoid putting all of your money in one place. Distribute your investments throughout several industries, sectors, and asset classes. This lessens the effect that a fall in one asset will have on the value of your entire portfolio. Diversification makes your portfolio more stable and less vulnerable to changes in the market.
  • Risk-Reward Ratio: This measure contrasts the possible gain with the possible loss on a certain transaction. Seek for transactions where the possible profit margin outweighs the potential loss margin. A better risk profile is indicated by a greater ratio. Prior to making a trade, evaluating the risk-reward ratio will help you make well-informed judgments regarding potential gain vs downside.

The figures below illustrate how take-profit and stop-loss can be implemented for a given stock (Meta around August 15,2024). Two orders are sent to the market (at the same time): a sell limit order with a limit price of $290 and a stop order with a trigger price of $280. Note that it is not always possible to place both a limit order an stop order at the same time (it depends on the brokers or trading platforms).

In Figure 1, the stock price stays below the limit price and above the trigger price.

Figure 1. No order execution.
No order execution
Source: computation by the author.

In Figure 2, the sell limit order is executed as the market price reaches the limit price of the order; the transaction price is $290.

Figure 2. Take profit: execution of the limit order.
Take profit: execution of the limit order
Source: computation by the author.

In Figure 3, the sell stop order is executed as the market price reaches the trigger price of the order; the transaction price is $280 (or lower if the market is not very liquid).

Figure 3. Stop loss: execution of the stop order.
Stop loss: execution of the stop order
Source: computation by the author.

Advanced Risk Management Techniques

As you gain experience, consider incorporating these advanced techniques:

  • Hedging: This is the process of offsetting possible losses in your underlying holdings by employing derivative instruments, such as option contracts. Before putting hedging methods into practice, careful thought and comprehension are necessary because they can be complicated.
  • Volatility Targeting: This strategy modifies the overall risk exposure of your portfolio in response to fluctuations in the market. You may lower the sizes of your positions or devote more capital to less volatile assets during times of high volatility. On the other hand, you may decide to take on larger positions or invest in riskier assets during times of low volatility.

Disciplined Execution: The Key to Success

Risk management is not just about having the right tools; it’s about disciplined execution. Here are some essential practices to cultivate:

  • Trading Plan: One must work meticulously in developing a comprehensive trading plan that clearly defines your entry, exit, risk management strategies, and what you aim to achieve from trading and avoid emotional and impulsive decision-making.
  • Monitoring and Adjustment: You must also regularly monitor your portfolio and be updated on financial news in order to prepare for potential future losses or opportunities. To maximize your gains utilize Stop loss orders and take profit orders and adjust your trades and position as and when needed.
  • Emotional Control: When we receive surprise losses or surprise gains we are inclined to make emotional and impulsive decisions that can lead to further future losses. The trader must always make decisions with a calm composed mind to make sound decisions.

By adopting these risk management principles and maintaining disciplined execution, you can navigate the real-time financial markets with greater confidence and minimize the possibility of significant losses. Remember, risk management is an ongoing process that requires constant evaluation and adaptation.

Related posts on the SimTrade blog

   ▶ Federico DE ROSSI Understanding the Order Book: How It Impacts Trading

   ▶ Jayati WALIA Quantitative risk management

   ▶ Ziqian ZONG My experience as a Quantitative Investment Intern in Fortune Sg Fund Management

   ▶ Michel VERHASSELT Risk comes from not knowing what you are doing

Useful resources

SimTrade course Trade orders

Justin Kuepper (June 12, 2023) Risk Management Techniques for Active Traders

Amir Samimi & Alireza Bozorgian (2022) An Analysis of Risk Management in Financial Markets and Its Effects, Jounrnal of Engineering in Industrial Research, 3(1): 1-7

About the author

The article was written in December 2024 by Vardaan CHAWLA (ESSEC Business School, Master in Strategy and Management of International Business (SMIB), 2020-2023).

Enhancing Financial Market Learning: The ‘Pair & Share’ Pedagogical Approach

by

Enhancing Financial Market Learning: The ‘Pair & Share’ Pedagogical Approach

François LONGIN

In this article, Professor François LONGIN (ESSEC Business School, Finance Department) explains how enhance financial market learning with the ‘Pair & Share’ pedagogical approach.

The SimTrade course

The SimTrade course, offered at ESSEC Business School, is an innovative program designed to provide students with a hands-on understanding of financial markets. At its core, SimTrade combines theoretical knowledge with practical applications, allowing participants to engage in realistic market simulations. Students can experiment with trading strategies, analyze market reactions, and make decisions in a controlled environment, fostering a deeper comprehension of market dynamics and investor behavior.

The course is grounded in the belief that experiential learning is essential for mastering the complexities of finance. By bridging theory and practice, SimTrade empowers students to navigate the fast-paced world of financial markets with confidence and competence.

The ‘Pair & Share’ pedagogical approach

I describe below the “Pair & Share” pedagogical approach that I discovered during the Glocoll program at Harvard Business School. The “Pair & Share” sequence is organized in three steps:

Step 1: Think Individually

I ask participants to consider the question: “What are three key points about financial markets?” for one minute.

Step 2: Pair & Share

I ask participants to exchange their ideas in groups of two. Participant A explains to Participant B what he/she thinks is important about financial markets, and vice versa. I also informed them that in the next step, I will ask the question : What have you learned from your partner?

Step 3: Group Feedback

Insights are shared with the class, summarized into a mind map.

You will find below the mind about financial markets from the students in the course that I teach at ESSEC Business school (Bachelor of Business Administration (BBA), Master in Finance (MiF), and Master in Strategy and Management of International Business (SMIB)).

Please click on the image below to download the mind map of the Pair & Share exercise on financial markets.

Download the mind map of the Pair & Share session
 

To open the file of the mind map download Xmind that I used during the webinar (there is a free version of the software).

Feel free to improve the mind map with your own ideas.

Methodology of the "Pair & Share" exercise

Please find below a few slides about the "Pair & Share" exercise (methodology and advantages).

 
Download the presentation of the Pair Share exercise

Related posts on the SimTrade blog

   ▶ Prof. François LONGIN Sur les traces de Wilhelm von Humboldt

Useful resources

SimTrade Demo certificate

SimTrade Courses

SimTrade Simulations

Harvard Business School Global Colloquium on Participant-Centered Learning

About the author

The article was written in December 2024 by Professor François LONGIN (ESSEC Business School, Finance Department).

Why are video games “free”?

by

Why are video games “free”?

William LONGIN Kilien DUPAYRAT

In this article, William LONGIN (Sorbonne School of Economics, Master in Money Banking Finance Insurance, 2024-2026) and Kilien DUPAYRAT (IESEG School of Management, Grande Ecole Program, Entrepreneurship, 2022-2027) discusses “free” video game business models and uses the case studies of League of Legends, Candy Crush, and Axie Infinity as an illustration.

Introduction

There is “no such thing as a free lunch” but somehow the early 21th century has been marked by the emergence of games that don’t need to be purchased to be played.

The video game market matters! It is the biggest entertainment related industry in the world. According to Access Creative College (2022) “the game industry is worth almost double the film and music industry, combined”. In 2022, the global market size of the video game industry was estimated at 217 billion USD and expected to grow at a compound annual growth rate (CAGR) of 13% between 2023 and 2030 according to Grand View Research (2022).

Since its inception in the late 20th century, the video game industry has rapidly evolved from arcade games to immersive experiences across devices. The industry keeps growing and is driven by changing consumer preferences and new technologies. At its disposal is an array of strategies to be profitable. The ways of playing and technologies also evolved with it, from the basic arcade games where you needed to insert a coin to play, to the most advanced business models like blockchain games where the content is made of NFTs. Companies in today’s revenue models master the balance between paying and non-paying players as well as understanding the latest trends.

In this article, we will look at why so many video game companies make their games free and how these new revenue models are the most popular. As a reminder, the revenue model is part of the business model and focuses on how the company makes money by monetizing its products.

Free-to-play (F2P) revenue model

The free-to-play (F2P) revenue model offers free download video games. Their method to generate revenue is through in-game purchases of virtual items for cosmetic, boosting or convenience purposes. The bought items don’t influence the gameplay but can appeal to a desire to design and customize (costumes, colors, etc.) The free-to-play revenue model initially wasn’t popular with investors and companies due to the dominance of traditional premium models, where games were purchased to download. The lack of upfront cost has allowed these sorts of games to reach a larger audience. The F2P model has proven to be highly effective, contributing significantly to the popularization of video games in general. In 2020, Free to play games accounted for “78% of the digital games market revenue” (Davidovici-Nora, 2013).

League of Legends case study

The spread of F2P revenue models came with the rise of online games such as “League of Legends,” free to download but with costly in-game items. The in-game currency is called “Riot Points, RP’s” and can be traded for cosmetic items (skins, wards, emotes) and other non-essential enhancements (event passes, rune pages). Purchases don’t give a gameplay advantage to paying players vs nonpaying players. Therefore, by eliminating barriers to entry to play the game significantly increased its reach. Consider here under the process map of typical experience for a player of “League of Legends” and where transactions take place.

Figure 1 below presents the flow chart “from download to purchase” for the case of League of Legends.

Figure 1. Flow chart from download to purchase: the case of League of Legends.
Flow chart from download to purchase: the case of League of Legends
Source: the authors.

In the flow chart above we can see that once players encounter the in-game store, they are introduced to a wide array of purchasable cosmetics like champion skins and emotes, which have no impact on gameplay but significantly enhance personalization. This creates a cycle of desire: players aspire to own these cosmetics, leading to the purchase of Riot Points (RP) using real money. The emotional satisfaction gained from these purchases’ fuels continued engagement, bringing players back to the game and reinforcing the loop.

Freemium revenue model

The freemium revenue model offers free-to-download video games like F2P games but it doesn’t offer access to the entire game. The differences between both business models are subtle. The gaming experience is incomplete (store purchases include game extensions at a premium). Thus, the name “freemium” is a combination of “free”, the core gaming experience is free and “premium” as the game extensions are purchasable at a premium. In this revenue model there is also possibility to purchase cosmetic items, boosters and convenience improvers.

Candy Crush case study

Candy Crush is an example using the freemium model because it is free to download and begin playing but encourages players to pay for certain enhancements or additional content to improve or expedite their gameplay experience. While the core mechanics—matching candies, progressing through levels, and competing with friends—are accessible at no initial cost, the game limits play sessions through mechanisms like lives (which refill slowly over time) and imposes difficulty spikes on certain levels. Players looking to bypass these limitations, access extra levels more quickly, or gain advantageous power-ups and boosters can purchase them through in-app transactions. These premium offerings are not strictly necessary to play the game, but they greatly enhance or complete the experience, making Candy Crush a clear example of the “freemium” model: the main game is free, yet the most streamlined, convenient, or extended version of play comes at a premium.

Figure 2 below presents the flow chart “from download to purchase” for the case of Candy Crush.

Figure 2. Flow chart from download to purchase: the case of Candy Crush Saga.
Flow chart from download to purchase: the case of Candy Crush
Source: the authors.

The flow chart above illustrates how the freemium revenue model typically unfolds for a game like Candy Crush Saga. Initially, players are enticed by the free download and ease of access. After installing, they enter a tutorial or trial phase where resources such as lives are abundant, allowing them to experience the game’s mechanics without frustration. As players progress, the difficulty gradually increases, eventually reaching levels at which winning without purchasing boosts or extra lives becomes challenging. This leads to a point of dissatisfaction or frustration, where the game’s free option feels less enjoyable or even stalled. In response, many players opt to make micro-purchases—buying boosters, additional moves, or unlocking new levels—to overcome obstacles and continue playing seamlessly. This cycle repeats, encouraging ongoing engagement and revenue generation through periodic spending.

Play-to-earn (P2E) revenue model

Revenue Model

The blockchain revenue model is known as the play-to-earn (P2E). These games use blockchain technology to create decentralized gaming ecosystems where players can earn real-world value through in-game activities. Although counterintuitive, this business model brings value to players and to the video game creators at the same time. This model represents a significant shift from traditional gaming paradigms by integrating financial incentives directly into gameplay.

Axie Infinity case study

The game Axie Infinity is a blockchain game and is an example of a P2E game. The game studio charges a rate between transactions in the game economy. “Sky Mavis charges a 4.25% fee to players when they trade Axies on its marketplace.” according to wikipedia.

Figure 3 below presents the flow chart “from download to purchase” for the case of Axie Infinity.

Figure 3. Flow chart from download to purchase: the case of Axie Infinity.
Flow chart from download to purchase: the case of Axie Infinity
Source: the authors.

The flow chart above illustrates the play-to-earn (P2E) revenue model, using Axie Infinity as an example. The process begins with a free download, allowing players to access the game without an initial purchase. Once immersed in gameplay, players engage in activities—such as battles, breeding, or quests—that reward them with in-game currency. What sets P2E apart is that these virtual assets have real-world value, often tied to cryptocurrencies like Ethereum. Players can trade, sell, or convert their earned in-game currency and items into real money, effectively monetizing their skill, time, and investment in the game. Every transaction, from buying and selling digital creatures (Axies) to acquiring special items, passes through a decentralized marketplace, with a percentage of each trade returning to the game developers. This cycle creates an ecosystem where both players and creators benefit financially, as gameplay activities drive the value of the in-game economy and sustain the platform’s growth.

Conclusion

In conclusion, the “Free-to-Play”, “Freemium”, and “Play-to-Earn” revenue models have revolutionized the way video games generate revenue, each presenting distinct strategies to engage and monetize players while having their games freely downloadable to players. These revenue models are also used in different sectors such as dating applications, social media and music streaming companies.

From a data analysis perspective, both models provide a wealth of information on user preferences and behaviors, allowing for increased personalization and optimization of gaming experiences. However, this also raises ethical questions, particularly concerning the management of gaming addiction and impulsive spending, especially among young or vulnerable players. In terms of performance, statistics often show that the Free-to-Play model can reach a broader user base, while the Freemium model can generate higher revenue per active user due to the need to unlock content, and Play-to-Earn models gain revenue when the gamer user base is active and growing. Each business model has its merits and drawbacks, and the choice of model largely depends on the type of game and the target audience.

Why Should I Be Interested in This Post?

You should be interested in this post because it gives insights on the revenue models companies in the video game industry have adopted. There a section on “blockchain” video games that are very recent and could hold a prevalent space in the years to come. Indeed, by mixing real currency and in-game currency and creating a virtual economy it can become even more addictive and meaningful for players. In the light of the new technologies developed in the augmented reality and virtual reality spaces these types of video games could be the future.

Related Posts on the SimTrade Blog

▶ Raphaël ROERO DE CORTANZE Gamestop: how a group of nostalgic nerds overturned a short-selling strategy

Useful resources

Grand View Research Video Game Market Size, Share & Trends Report Video Game Market Size, Share & Trends Analysis Report By Device (Console, Mobile, Computer), By Type (Online, Offline), By Region (Asia Pacific, North America, Europe), And Segment Forecasts, 2023 – 2030?

Access Creative College How much is the gaming industry worth?

Techquickie (YouTube channel) Blockchain Games Are Here – What You Should Know

Wikipedia Axie Infinity

About the authors

The article was written in December 2024 by William LONGIN (Sorbonne School of Economics, Master in Money Banking Finance Insurance, 2024-2026) and Kilien DUPAYRAT (IESEG School of Management, Grande Ecole Program, Entrepreneurship, 2022-2027).

Top 5 companies in the technology sector

by

Top 5 companies in the technology sector

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024) delves into the top five companies in the technology sector by market capitalization. For each tech company, I provide information into their origins, latest announcements, and notable developments to provide financial professionals and students with actionable insights.

Introduction

The top tech companies are not only industry innovators but also major drivers of global financial markets. Their influence extends from stock market trends to shaping global investment strategies. Their products and services help other companies to improve their productivity. These companies, Apple, Nvidia, Microsoft, Amazon, and Alphabet, dominate global market capitalizations through their relentless focus on advanced technologies like artificial intelligence (AI), cloud computing, and digital services. We examine below the top five tech firms by market capitalization, delving deeper into their financial performance, innovation strategies, and implications for finance professionals.

The picture below shows the world’s 50 valuable companies by market capitalization (Companies Market Cap, August 2024). We can observe that the top 5 companies are related to the technology industry.

World’s top 50 valuable companies by market capitalization
World’s top 50 valuable companies by market capitalization
Source: Companies Market Cap.

The market capitalization, commonly called a “market cap”, is the total market value of a publicly traded company’s outstanding shares and is widely used to measure how much a company is worth. In most cases, it can be easily calculated by multiplying the share price with the amount of outstanding shares.

Apple

Apple Inc was founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne in Cupertino, California. Known for its consumer electronics like the iPhone, Mac, and Apple Watch, Apple also thrives in services such as the App Store and Apple Music, contributing to over 20% of its revenue. Apple consistently generates substantial revenue from its ecosystem of devices and services. In fiscal 2024, its services division alone brought in over $70 billion, reflecting a 25.17% change in the market capitalization growth from the previous year.

Logo of Apple Inc.
Logo of Apple Inc tech company
Source: the company.

As of December 2024 Apple has a market cap of $3.748 Trillion USD. This makes Apple the world’s most valuable tech company by market cap according to “companies market cap” company data.

The picture below shows the market capitalization history of Apple from 1996 to 2024.

Market cap history of Apple from 1996 to 2024
Market cap history of Apple from 1996 to 2024
Source: Companies Market Cap.

The picture below shows the stock price history of Apple from 1980 to 2024.

Stock price history of Apple from 1980 to 2024
Stock price history of Apple from 1980 to 2024
Source: Companies Market Cap.

The company’s stock remains a popular choice for institutional investors due to its consistent performance and market leadership. Apple has steadily increased its dividend and share buybacks, returning over $100 billion to shareholders annually in recent years. Despite declining iPhone sales, Apple’s diversification into wearables and services helped sustain strong financials. It also topped the list of the world’s most valuable global brands in 2023 with a brand value of $880 billion (Business 2 community, 2024).

Initially focused on personal computers, Apple has evolved into a consumer electronics powerhouse. In recent years, its technological innovations, including the Vision Pro mixed-reality headset announced in 2023, underscore its push into augmented and virtual reality spaces. Its expansion into India has been a game-changer, with manufacturing operations set to reduce costs and increase market penetration in one of the fastest-growing smartphone markets.

Initially focused on personal computers, Apple has evolved into a consumer electronics powerhouse. In recent years, its technological innovations, including the Vision Pro mixed-reality headset announced in 2023, underscore its push into augmented and virtual reality spaces. Its expansion into India has been a game-changer, with manufacturing operations set to reduce costs and increase market penetration in one of the fastest-growing smartphone markets.

Nvidia

Founded in 1993, Nvidia Corporation is a leader in Graphics Processing Unit (GPU) development, powering the AI revolution. Its AI hardware is critical for training large language models (LLMs), cementing its role in both consumer gaming and enterprise-level AI solutions. In fiscal 2024, its services division alone brought in over $1.8 trillion, reflecting a 178.92% change in the market capitalization growth from the previous year.

Logo of Nvidia
Logo of Nvidia tech company
Source: the company.

As of December 2024, Nvidia has a market cap of $3.411 Trillion USD. This makes Nvidia the world’s 2nd most valuable tech company by market cap according to “companies market cap” company data. The market capitalization, commonly called market cap, is the total market value of a publicly traded company’s outstanding shares and is widely used to measure how much a company is worth.

The picture below shows the market capitalization history of Nvidia from 1999 to 2024.

Market cap history of Nvidia from 1999 to 2024
Market cap history of Nvidia from 1999 to 2024
Source: Companies Market Cap.

The picture below shows the Stock price history of Nvidia from 1999 to 2024.

Stock price history of Nvidia from 1999 to 2024
Stock price history of NVIDIA from 1999 to 2024
Source: Companies Market Cap.

Nvidia dominates the GPU market, controlling over 85% of the discrete GPU space globally. It boasts a gross margin of approximately 65%, one of the highest in the semiconductor industry. According to the Business 2 community, Nvidia’s revenue surged, particularly in its data center segment, which accounted for $15 billion in 2023. Its AI chipsets have become a cornerstone for AI development across industries, leading to increased investor confidence.

Nvidia is integral to AI, as its GPUs are critical for training large language models (LLMs) and generative AI tools. This has led to surging demand for its A100 and H100 chips. Nvidia announced collaborations with Tesla and other automakers for AI-driven autonomous driving technologies.

The company continues to expand its AI reach through strategic investments in startups and partnerships with cloud providers like Amazon Web Services (AWS). Its Omniverse platform is being adopted for digital twins, a technology with applications in industrial design and smart cities.

Microsoft

Established in 1975 by Bill Gates and Paul Allen, Microsoft Corporation has been at the forefront of software development. Its strategic investment in OpenAI and integration of generative AI into its Office suite and Azure cloud services have significantly bolstered its growth. Investors and students can learn from Microsoft’s ability to adapt its business model over decades, sustaining growth in both legacy and emerging markets. In fiscal 2024, its services division alone brought in over $70 billion, reflecting a 19.59% change in the market capitalization growth from the previous year.

Logo of Microsoft Corporation
Logo of Microsoft Corporation tech company
Source: the company.

As of December 2024 Microsoft has a market cap of $3.342 Trillion USD. This makes Microsoft the world’s 3rd most valuable tech company by market cap according to “companies market cap” company data. The market capitalization, commonly called market cap, is the total market value of a publicly traded company’s outstanding shares and is widely used to measure how much a company is worth.

The picture below shows the market capitalization history of Microsoft from 1996 to 2024.

Market cap history of Microsoft from 1996 to 2024
Market cap history of Microsoft from 1996 to 2024
Source: Companies Market Cap.

The picture below shows the stock price history of Microsoft from 1986 to 2024.

Stock price history of Microsoft from 1986 to 2024
Stock price history of Microsoft from 1986 to 2024
Source: Companies Market Cap.

Microsoft has surpassed a $3 trillion market cap for the first time in January 2024. It has made a significant investment in quantum computing with the development of its Azure Quantum platform.

Microsoft’s Copilot AI has been integrated across its Office Suite, including Word, Excel, and PowerPoint, revolutionizing productivity software. Recent news in June 2024 states that it has strengthened its partnership with OpenAI to bring advanced AI tools to Azure, making enterprise AI more accessible globally.

Amazon

Amazon Inc, founded in 1994 by Jeff Bezos, revolutionized e-commerce before expanding into cloud computing and entertainment. Amazon Web Services (AWS) remains a dominant player in the cloud sector, while its AI capabilities support logistics, retail, and media content. In fiscal 2024, its services division alone brought in over $85 billion, reflecting a 54.2% change in the market capitalization growth from the previous year.

Logo of Amazon
Logo of Amazon tech company
Source: the company.

As of December 2024 Amazon has a market cap of $2.421 Trillion USD. This makes Amazon the world’s 4th most valuable tech company by market cap according to “companies market cap” company data.

The picture below shows the market capitalization history of Amazon from 1997 to 2024.

Market cap history of Amazon from 1997 to 2024
Market cap history of Amazon from 1997 to 2024
Source: Companies Market Cap.

The picture below shows the Stock price history of Amazon from 1997 to 2024.

Stock price history of Amazon from 1997 to 2024
Stock price history of Amazon from 1997 to 2024
Source: Companies Market Cap.

Amazon’s Bedrock AI service has enabled enterprises to deploy customized AI models, further enhancing its AWS offerings. According to CRN, AWS held a 31% market share in the third quarter of 2024 and generated $27.5 billion in total sales during this period.

And according to CRN, Microsoft’s Intelligent Cloud business generated $24.1 billion in sales during the third quarter of 2024, up 20 percent year over year. It has also ramped up investments in drone technology, with Prime Air expanding to multiple cities for rapid deliveries. Its expansion into healthcare, with telemedicine services and pharmacy offerings, demonstrates diversification into high-growth industries.

Amazon’s continued investment in AI, including generative AI tools for its AWS customers, has strengthened its competitive edge in cloud services. Its e-commerce business has also seen growth, particularly in emerging markets contributing significantly, with innovations in logistics and Prime memberships driving customer retention.

Alphabet (Google)

Alphabet was founded in 1998 as Google by Larry Page and Sergey Brin in Menlo Park, California (later restructured as Alphabet Inc. in 2015). Google’s dominance in search and online advertising is complemented by its ventures in AI, particularly through its DeepMind subsidiary. It leverages its dominance in digital advertising while investing heavily in AI, autonomous driving (Waymo), and cloud services. Some of the companies under Alphabet are Calico, GV, Capital G, Verily, Waymo, X and Google Fiber. In fiscal 2024, its services division alone brought in over $65 billion, reflecting a 36.57% change in the market capitalization growth from the previous year.

Logo of Alphabet
Logo of Alphabet tech company
Source: the company.

As of December 2024 Alphabet (Google) has a market cap of $2.399 Trillion USD. This makes Alphabet (Google) the world’s 5th most valuable tech company by market cap according to “companies market cap” company data.

The picture below shows the market capitalization history of Alphabet from 2014 to 2024.

Market cap history of Alphabet from 2014 to 2024
Market cap history of Alphabet from 2014 to 2024
Source: Companies Market Cap.

The picture below shows the stock price history of Alphabet from 2004 to 2024.

Stock price history of Alphabet from 2004 to 2024
Stock price history of Alphabet from 2004 to 2024
Source: Companies Market Cap.

Nearly eight years into their journey as an AI-first company, Alphabet launched Gemini AI, a generative AI model to compete with OpenAI’s GPT, integrated into Google Workspace and search functions. Alphabet’s significant developments in Waymo, an autonomous vehicle subsidiary has an expansion of robotaxi services in major U.S. cities.

Recently Alphabet announced an ambitious plan to power all operations with 100% renewable energy by 2030. Its advertising revenues saw a resurgence in 2024 after a decline due to privacy changes in prior years.

Conclusion

The dominance of the top five technology firms Apple, Microsoft, Nvidia, Amazon, and Alphabet, is a testament to their ability to innovate, adapt, and lead in a rapidly evolving market landscape. Their influence extends beyond their respective industries, shaping global economic trends, investment strategies, and technological advancements. Their products and services help other companies to improve their productivity. Their market cap rankings serve as a barometer for the health of the tech sector and the global economy, making them essential for any professional seeking to navigate today’s financial landscape effectively.

Why should I be interested in this post?

For finance professionals, the performance and strategic moves of these tech giants offer valuable lessons in market resilience, innovation-driven growth, and capital allocation. Understanding the trajectories and current strategies of these firms helps in identifying investment opportunities and evaluating risks in the tech sector.

Related posts on the SimTrade blog

   ▶ Nithisha CHALLATop 5 companies by market capitalization in the US

   ▶ Nithisha CHALLA Market Capitalization

   ▶ Nithisha CHALLAThe NASDAQ index

Useful resources

Companies market cap Largest tech companies by market cap

Invest News Network (INN) Technology Stocks: 10 Biggest Companies in 2024

Business 2 Community Top 10 Tech Companies in the World by Market Capitalization in 2024

Computer Reseller News (CRN) Cloud Market Share For $84B Q3 2024: AWS, Microsoft, Google Cloud Lead

Visual Capitalist Ranked: The 50 Most Valuable Companies in the World in 2024

About the author

The article was written in December 2024 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management (MiM), 2021-2024).