In this article, Camille Keller (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) explores coffee’s global consumption trends, examining regional habits, cultural significance, and emerging preferences.
Coffee: A Universal Obsession
Coffee holds the distinction of being the second most consumed beverage in the world after water. With an estimated 10 billion kilograms consumed annually in 2023, according to the International Coffee Organization’s latest global report, coffee plays a central role in daily life for millions. While its appeal began in regions like the Middle East and Europe, its reach has extended to every corner of the globe. In traditionally tea-drinking nations like China and India, coffee is steadily gaining popularity, driven by urbanization and an expanding middle class.
The cultural significance of coffee is evident in how it is integrated into the lifestyles of various regions. In Italy, espresso is more than just a drink; it is a tradition, often consumed while standing at the bar. In the United States, coffee fuels the on-the-go culture, with chains like Starbucks shaping global perceptions of coffee consumption. Meanwhile, in Scandinavian countries, coffee consumption is a communal affair, often paired with “fika,” a Swedish custom of taking a break with coffee and pastries. Across regions, coffee’s versatility allows it to adapt to local customs, cementing its place in daily routines worldwide.
Espresso bar in Italy
Source: Shutterstock.
Regional Consumption Patterns: Who Drinks the Most?
The world’s coffee consumption reveals fascinating disparities across regions. Europe remains the leader, with Northern European countries like the Netherlands, Finland, and Denmark topping the per capita consumption charts. According to Statista in 2023, the Netherlands leads with an impressive 8.11 kilograms per person annually, followed closely by Finland at 7.99 kilograms. These figures underscore a deeply ingrained coffee culture in these regions, where coffee is not just a beverage but a social ritual.
Meanwhile, the United States, the largest single market for coffee, ranks significantly lower in per capita consumption, averaging around 4 kilograms per person annually. This contrast highlights a distinct cultural difference: as noted by Jacobsen (2024), Americans predominantly favor convenience and mass-market coffee, which aligns with the rise of chain brands and ready-to-drink formats. This reflects a broader trend in the U.S., where coffee consumption habits are driven by practicality rather than the artisanal focus seen in Europe.
Per Capita Coffee Consumption in 2023
Source: Statista.
Asia, once dominated by tea, has emerged as a growing market for coffee. Countries like Japan and South Korea have embraced coffee culture, with specialty cafes and innovations like canned coffee becoming mainstream. China’s coffee market, although nascent, is expanding rapidly, driven by a young, urban demographic eager to adopt global trends. Latin America, home to many coffee-producing countries, is seeing a shift from exporting to cultivating local appreciation, with Brazil and Colombia leading domestic consumption in the region.
Urbanization and changing lifestyles play a significant role in driving coffee consumption. As more people move to cities, the demand for convenient and premium beverages increases. Younger generations, in particular, are drawn to coffee not only for its energizing properties but also for its social and aesthetic appeal, as showcased on platforms like Instagram.
Transforming Habits: Sustainability and Evolving Preferences
The coffee industry is undergoing a profound transformation, driven by shifting consumer values and evolving preferences. Sustainability now plays a pivotal role in purchasing decisions, particularly among younger consumers. Research by Robichaud and Yu (2022) highlights that Generation Z (aged 15–24) places increasing importance on ethical and sustainable consumption, with certifications like Fair Trade and Rainforest Alliance acting as key motivators. These certifications ensure that coffee production aligns with ethical labor practices, environmental conservation, and fair wages for farmers, reflecting the growing demand for transparency and social responsibility.
In parallel, the rise of connoisseur consumers—those who seek high-quality specialty coffee—has emphasized the importance of sustainability in production. As noted by Bartoloni et al. (2022), this segment values not only the taste and uniqueness of coffee but also its environmental and ethical footprint. For these discerning drinkers, coffee consumption is as much about supporting sustainable practices as it is about enjoying a premium product.
Evolving preferences are also shaping the industry. The increasing popularity of plant-based diets has led to the widespread adoption of non-dairy alternatives like almond, oat, and soy milk in cafés worldwide. Cold brew, once considered niche, has become a mainstream favorite, particularly among millennials and Gen Z consumers, who gravitate towards innovative and convenient formats. The growth of ready-to-drink coffee beverages reflects this trend, offering busy consumers a blend of convenience, variety, and sustainability in packaging and sourcing.
Health-conscious consumers further influence the market by demanding options such as low-caffeine, organic, and functional coffee infused with superfoods like turmeric and collagen. These preferences align with broader wellness movements and reflect a shift in how coffee is perceived—not just as a beverage but as a lifestyle choice. Together, these changes signal a new era in the coffee industry, where sustainability and innovation go hand in hand.
Why Should I Be Interested in This Post?
Global coffee consumption reflects broader trends in sustainability, wellness, and innovation. For ESSEC students interested in understanding global markets or sustainable trade practices, this article highlights important insights into consumer behavior and industry dynamics.
In this article, Camille KELLER (ESSEC Business School, Bachelor in Business Administration (BBA), 2020-2024) explores coffee as a commodity and cultural staple.
Coffee is more than just a beverage; it is a universal ritual, an economic cornerstone, and a cultural staple. As one of the most traded commodities in the world, coffee fuels not only mornings but also economies. In this post, we will explore the many faces of coffee, the countries that produce it, and the industry’s global composition, setting the stage for a deeper understanding of its role in global markets.
The different types and varieties of coffee
Two primary species dominate the coffee market: Arabica and Robusta. Arabica constitutes approximately 60-70% of global coffee production as of 2023, according to the International Coffee Organization. Known for its mild and nuanced flavors, Arabica thrives in high-altitude regions with cooler climates. In contrast, Robusta, which is hardier and more resistant to pests, grows at lower altitudes and features a bolder, more bitter flavor, with nearly double the caffeine content of Arabica. Lesser-known species such as Liberica and Excelsa contribute unique flavor profiles. Liberica is renowned for its smoky and floral notes, while Excelsa delivers tart, fruity nuances, though both occupy a niche share of the global market.
Coffee’s quality and flavor depend not only on its species but also on how it is processed. Washed or wet processing produces clean, vibrant flavors and is favored for specialty-grade coffee. Natural or dry processing offers fruity, full-bodied profiles as beans dry inside the coffee cherry. The honey process, a hybrid method, balances sweetness and acidity. Specialty coffee, graded on a scale of 100 points by organizations like the Specialty Coffee Association, stands apart from commodity coffee due to its superior flavor, sustainability practices, and traceability.
Coffee mug
Source: Shutterstock
Mapping the world of coffee: key producing countries
The global coffee market relies heavily on a few key players. Brazil is the world’s largest coffee producer, accounting for 39% of global output. Its diverse climate supports both Arabica and Robusta cultivation, with highly mechanized farming methods. Vietnam, the second-largest producer, specializes in Robusta and contributes around 16% of global production. Known for its efficient, high-yield practices, Vietnam is one of the main players in the coffee industry. Colombia, renowned for its high-quality Arabica beans, benefits from mountainous terrain and ideal climate conditions that produce coffee with bright acidity and rich aroma. Indonesia offers coffee with distinct earthy and spicy notes, thanks to unique wet-hulling processes. Ethiopia, often called the birthplace of coffee, produces some of the world’s most sought-after Arabica beans, featuring floral and fruity profiles.
Emerging players like Rwanda, Guatemala, and Honduras are carving out a reputation for high-quality specialty coffee. These countries are gaining recognition in global markets for their unique flavor profiles and commitment to sustainable practices. The global coffee industry thrives on this diverse production landscape, where each region’s distinct climate, soil, and methods contribute to the variety of coffee available to consumers.
Source: The Coffee Belt Map
Source: melacoffee.com
The industry landscape: big players and composition
Coffee’s journey from farm to cup involves a complex supply chain. Smallholder farmers account for over 70% of global coffee production, often working within cooperatives to improve their market access and bargaining power. Exporters act as intermediaries, facilitating the sale of raw coffee to international buyers. Roasters then transform green coffee beans into the aromatic, roasted coffee that consumers recognize, while retailers, including cafes, supermarkets, and e-commerce platforms, serve as the final link between coffee and the end consumer. Certification organizations like Fair Trade and Rainforest Alliance play a critical role in promoting sustainable and ethical practices across the supply chain, ensuring that the industry’s growth does not come at the expense of its workers or the environment.
A few multinational corporations wield significant influence over the coffee market. Nestlé, with its Nescafé and Nespresso brands, dominates the instant coffee and capsule markets. JDE Peet’s, home to brands like Jacobs, Douwe Egberts, and Peet’s Coffee, is a key player in retail coffee. Starbucks, known for its premium offerings, sets global trends and boasts a vast retail footprint. These corporations drive innovation, shape consumer preferences, and impact coffee prices through their purchasing power and marketing strategies. The industry’s composition reflects a delicate balance between the efforts of small-scale farmers and the strategies of large-scale corporations, each playing a vital role in coffee’s global narrative.
Why should I be interested in this post?
Coffee’s journey from farm to cup involves a complex supply chain. For students of ESSEC interested in global economics, commodities, or sustainable trade, understanding the coffee industry offers key insights into market dynamics, sustainability, and global commerce.
In this article, Anouk GHERCHANOC (IE University, Bachelor in Business Administration (BBA), 2021-2025) shares her experience as a financial analyst for companies in the French overseas territories in the 2IF Department of the Inter Invest Group.
About Inter Invest Group
Founded in 1991, the Inter Invest Group is a significant player in the financing and investment sector. Based in Paris, the group operates in various fields, including corporate finance, real estate projects, and wealth management advice. Thanks to its expertise and ability to offer tailor-made solutions, the Inter Invest Group supports its clients’ development strategies. Its authorization by the Autorité de Contrôle Prudentiel et de Résolution (ACPR, CIB 17808) guarantees rigorous and transparent financial practices, reinforcing its reputation as a trusted partner for private individuals, companies, and institutional investors.
Logo of Inter Invest Group.
Source: the company.
During my internship in 2024, I joined the 2IF department, which specializes in providing financing solutions for companies in French overseas territories (Guadeloupe, Martinique, Saint-Martin, Saint-Barthélemy, French Guiana, Réunion, Mayotte, French Polynesia, New Caledonia). Central to the department’s operations is the SOFIDOM offer, a financing scheme designed to address the specific needs of businesses in these regions. This offer supports companies by providing funds for equipment renewal, business expansion, and operational costs, whether the financing falls under tax exemption schemes or not. A key priority of the department is to deliver rapid and efficient responses to financing requests, allowing businesses to move forward with their projects without delays. This approach ensures efficiency and reflects a deep understanding of the unique economic and logistical challenges faced by companies in French overseas territories, enabling tailored financial support that meets local needs.
My internship
My internship in the 2IF department of the Inter Invest Group was a rewarding and formative experience. This department, which specializes in financing companies located in the French overseas territories, enabled me to actively contribute to assessing financing requests for small businesses. These businesses included newly established structures seeking to develop their activities and others facing financial difficulties requiring appropriate support.
An essential part of my job was analyzing the financial files, taking into account the specific economic features of the overseas territories, particularly their geographical remoteness, operating costs, and dependence on key sectors such as construction and food processing. This enabled me to develop an in-depth understanding of the unique challenges faced by these businesses while applying my theoretical knowledge of finance to real-life situations.
The 2IF department stands out for its responsiveness and efficiency, two essential assets for responding to companies’ immediate needs. This dynamic has led me to work to tight deadlines, requiring clear task prioritization and rapid but rigorous decision-making. Combining these demands with detailed financial analysis taught me to balance precision and efficiency, an essential skill in the financial sector.
Financed overseas territories.
Source: the company.
My missions
Verification of document conformity. My first task was to ensure the conformity of the financial and legal documents submitted by companies as part of their application for financing. I rigorously analyzed the conformity of balance sheets, income statements, Kbis (a document that certifies the legal existence of a French company), company articles of association, bank or personal guarantees, and bank statements for the last three months. These checks were carried out in compliance with LCB-FT (Lutte Contre le Blanchiment et le Financement du Terrorisme) obligations to identify any inconsistencies or irregularities in the data provided. For example, some files revealed anomalies in the financial statements or bank movements, which led to an in-depth review of the projects before a financing decision could be made. This verification stage was essential to lay a solid foundation for a reliable financial analysis and to ensure regulatory compliance.
In-depth financial analysis. Once the documents had been validated, I conducted in-depth financial analyses using key indicators such as profitability, solvency, and liquidity ratios. Specific calculations supplemented these analyses to refine the assessment of the companies, including the net debt ratio to measure their dependence on debt, the operating margin to assess the efficiency of core activities, the net operating profitability to analyze their ability to generate sustainable profits, and the level of equity about the total balance sheet to assess their financial strength. My analyses were based mainly on the passive balance sheets of the last two years and the profit and loss accounts, supplemented by a study of interim sales, to obtain an up-to-date and accurate view of the companies’ performance. Thanks to this methodology, I could identify significant elements, such as differences in financial structure or revenue dynamics, which were used to support my favorable or cautious recommendations.
Preparation of structured reports. The conclusions of my analyses were then summarized in detailed reports, structured around several key sections: presentation of the company, its directors and partners, description of the financing plan requested, in-depth analysis of the balance sheets and income statements, assessment of the sureties proposed and viability of the guarantees provided. Finally, I drew a reasoned conclusion on the financing request, with a favorable, reserved, or unfavorable opinion, depending on the case. These reports were then submitted to the Director of Financing, responsible for making the final decision. He could give conditional approval, requiring adjustments to the financing plan depending on his feedback.
Required skills and knowledge
My skills in financial accounting, operations management, corporate finance, and financial analysis, which I applied through my university education, played an essential role in effectively executing my day-to-day analyses. These skills enabled me to evaluate financial data and provide actionable information. My expertise in Excel proved invaluable in accurately processing balance sheets, cash flows, and income statements, enabling me to identify patterns, assess financial health, and make strategic recommendations. In addition, my mastery of Power BI helped me to design dynamic and visually appealing reports for the board of directors. These reports summarize the department’s financial results and strategic objectives, providing a clear and actionable overview that facilitates informed decision-making at the management level, a task I was given during my internship. Together, these tools enhanced the depth and effectiveness of my analyses, ensuring that critical points were addressed and presented with clarity.
On an interpersonal level, my soft skills played a key role in meeting the demands of my assignments. My ability to approach problems analytically enabled me to break down complex issues and propose practical, data-driven solutions. Effective organization and prioritization of tasks were essential in managing competing deadlines, ensuring that every product delivered met the high standards expected within the department. In addition, my strong communication skills enabled me to articulate written and verbal results.
Working in a fast-paced, dynamic environment increased my flexibility and responsiveness, enabling me to adapt to changing priorities and unexpected challenges without compromising quality. This adaptability has proved essential in managing multiple responsibilities simultaneously while maintaining a strategic focus on key objectives. Overall, the combination of technical expertise and non-technical skills I developed during this internship has greatly enhanced my ability to contribute effectively to financial projects.
What I learned
This internship was a vibrant learning experience that enabled me to move from academic theory to professional practice. I developed concrete expertise in financial analysis, particularly in evaluating financing applications and interpreting economic data. I have also honed my ability to detect anomalies in financial documents while producing clear, structured reports essential for supporting strategic decisions.
One of the priorities of my assignments was to provide a rapid, well-argued response to the acceptance or rejection of financing requests. Working to tight deadlines enabled me to strengthen my time management skills and develop my ability to manage multiple priorities effectively. This experience prepared me for complex challenges in the demanding finance sector.
The internship also confirmed my ambition to pursue a career in finance, making the most of my analytical skills and my interest in projects with a strong economic and social impact. The opportunity to work on concrete projects in a demanding, structured environment gave me a better understanding of the complexity of corporate finance and the importance of personalized support to ensure the success of projects.
Financial concepts related my internship
I present below three financial concepts related my internship: net margin, shareholders’ equity, and cash flow.
Net margin
During my internship, net margin came to the fore as a key indicator in company valuations. This ratio, calculated from net income divided by sales, measures a company’s ability to generate profits after covering all its costs, including tax and financial expenses. This analysis enabled me to understand the overall performance of the companies I studied and their ability to maintain a sufficient level of profit to sustain growth or cope with unforeseen financial events. I could identify the companies’ structural strengths and weaknesses by examining the net margin. High profitability reflected effective cost management, reasonable control of monetary expenses, and efficient operational activity. Conversely, low or negative profitability could indicate problems such as insufficient margins, an overly heavy cost structure, or competitive pressure on prices.
For example, one construction company I analyzed had a stable net margin thanks to rigorous management of operating costs and efficient project planning. This cost control, combined with the diversification of its contracts, reinforced my recommendation in favor of financing to modernize its equipment fleet and support its expansion into new markets. Conversely, a company in the agri-food sector showed a negative net margin. This was due to a significant rise in raw material costs, which had not been passed on to its sales prices, considerably reducing its margins.
Shareholders’ equity
Shareholders’ equity is essential for assessing a company’s financial strength. It comprises share capital, reserves, and retained earnings and appears on the liabilities side of the balance sheet. These elements are crucial in measuring a company’s ability to finance its activities over the long term, absorb losses, and limit its dependence on creditors. Share capital represents the contribution made by shareholders at the time of the company’s creation or capital increase, while reserves correspond to retained earnings used to strengthen shareholders’ equity. Retained earnings are profits or losses from previous years, reflecting the company’s past performance. Solid shareholders’ equity reflects the company’s financial stability, enabling it to withstand economic crises and finance its projects without excessive borrowing. This reduces the risk to creditors and allows the company to obtain more advantageous financing terms.
Within the 2IF department, a strict rule applied specifically to tax-exempt financing. The latter, governed by precise criteria, required that the equity shown in the last balance sheet liabilities exceeded half of the company’s share capital. This requirement guaranteed a solid financial base and minimized the risks for tax-exempt projects. If this condition was not met, the application for tax-exempt financing could not be accepted.
Cash flow
Cash flow analysis was essential to my work, in compliance with LCB-FT (Lutte Contre le Blanchiment et le Financement du Terrorisme) standards. It was based on examining the companies’ last three minimum bank statements, enabling me to assess their capacity to absorb the financial burden associated with the requested financing.
Based on these statements, I analyzed the consistency between payments received and contracts provided while checking for any other significant debts that might limit their financial room for maneuvering. This approach also ensured the traceability of financial flows and detected anomalies, such as unjustified transfers or discrepancies between actual transactions and the declarations provided. By ensuring complete transparency of financial operations, this cash flow analysis played a decisive role in formulating my recommendations and ensuring the company had the necessary resources to manage its current commitments and the requested financing.
Why should I be interested in this post?
This article is aimed at students and young professionals wishing to better understand the particularities of corporate finance, especially in the French overseas territories. It focuses on analyzing the unique challenges of these regions and applying key skills in financial analysis, risk management, and strategic decision-making. The Inter Invest Group offers a unique opportunity to gain practical experience and contribute to relevant financial projects.
In this article, Yann FONTAINE (head of Marketing of atometrics) and Sylvain GILIBERT (co-founder of atometrics) explain about the importance of data in finance to support small business managers. They discuss how their platform, atometrics, helps transform complex market data into actionable insights for small businesses and their stakeholders (like accountants, banks, brokers, and consultants) throughout different stages of the business lifecycle – from creation to development, through difficult phases, and during transmission/acquisition processes.
Today economic context
Did you know that 29% of local businesses in France fail within their first three years , often due to a lack of market understanding?
In today’s fast-moving economy, access to relevant and actionable data is critical for businesses—whether they are launching, growing, or overcoming challenges. Yet, small business managers and their advisors often struggle to find and interpret the right information —strategic insights about their market, including prospects, customers, competitors, and the business environment—, particularly at a local level. By local level, we mean the geographic scope tailored to the company’s market: from the catchment area of a neighbourhood for a local retail store to the entire country for national markets.
The power of local data
For businesses operating in local markets, understanding the economic environment, consumer behavior, competition and market transactions is essential. In France, open data sources provide valuable insights, but the sheer volume and complexity of this information can be overwhelming without the right tools.
atometrics: turning data into decisions
At atometrics, we simplify this process. Our platform automates the collection, analysis, and visualization of market data across all sectors and locations of the economy. By combining financial and non-financial information, we provide clear, actionable insights to support small business managers and their trusted partners, such as certified accountants, bankers, and consulting firms.
Logo of atometrics.
Source: the company.
Description of the product: atometrics platform
Atometrics is a cutting-edge platform that connects in real-time to numerous public and private databases via APIs, such as SIRENE (the national directory of businesses in France), BODACC (official bulletins for company announcements, including bankruptcies and mergers), public financial records from Infogreffe, INSEE census data (socio-economic and demographic statistics), DVF property transaction data (detailing real estate sales), Damodaran’s valuation datasets (global financial benchmarks), and more. By leveraging this vast data network, the platform enables users to generate comprehensive market studies instantly.
Searching for a company.
Source: atometrics.
Users simply select an industry (e.g., bakery, hairdressing) and a location, and Atometrics delivers a detailed report. This includes financial insights on competitors, transaction prices for nearby properties or businesses, valuation tools for businesses or shares, competitor mapping, and local demographic and economic data. Additionally, qualitative market insights are provided. The platform also features customizable email alerts to notify users of critical events, such as new tenders or competitors.
Report on a company.
Source: atometrics.
The platform allows users to either work with specific datasets (e.g., Excel exports, map visuals) or generate complete reports in PDF or PPT format.
Supporting small businesses at every stage
atometrics empowers small businesses through their stakeholders — accountants, banks, brokers, consultants — to access key information at the different stages of the business life cycle:
Creation: assess market feasibility, validate business plans, and identify the best locations for new businesses.
Development: monitor trends, spot opportunities, and manage risks. For example, our platform can alert managers to new competitors or relevant public tenders in real time.
Difficulty phases: respond quickly to economic shifts with up-to-date market intelligence, ensuring resilience during challenging times.
Transmission and acquisition: conduct reliable valuations of businesses, assets, or securities based on accurate market multiples.
A concrete example: how atometrics enhances banking efficiency and risk assessment
Banks leveraging atometrics gain a significant advantage by accessing a uniform and structured source of information. When client managers and risk analysts evaluate a funding request or a business plan, they need to determine whether the entrepreneur is likely to achieve their revenue targets. This requires reliable market data: have similar projects succeeded or failed? Does the targeted catchment area show strong potential?
Atometrics simplifies this process by providing objective, data-driven insights that streamline the assessment of funding requests and accelerate the time to market of loan drawdowns. Instead of spending hours collecting and interpreting scattered information, bank advisors can access clear, actionable insights in real time.
Furthermore, the shared use of atometrics across commercial and risk departments fosters a common source of information among them, hence improving communication and collaboration between teams.
Conclusion
In today’s data-driven world, success belongs to those who can transform information into action. atometrics equips small business stakeholders with the tools and insights they need to unlock opportunities, navigate challenges, and drive sustainable growth—at every stage of the journey.
Why should I be interested in this post?
In today’s era of open finance and open data, financial professionals need cutting-edge tools to better serve their clients. This article reveals how atometrics, an innovative French fintech, is transforming the way banks, brokers, accountants, and business advisors support companies through data analytics. Whether you’re an ESSEC student preparing for a career in finance, a banker looking to streamline credit processes, or a consultant aiming to provide better market insights, you’ll want to know how the latest data-driven tools are reshaping financial decision-making and improving client service.
In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) presents the Top 10 Cryptocurrencies by Market Capitalization (August 2024).
Market Capitalization of Cryptocurrencies
Market capitalization, often referred to as market cap, signifies the complete monetary worth of a company’s stock or, in the realm of cryptocurrencies like Bitcoin, the collective value of all mined coins. In the cryptocurrency domain, market cap is computed by multiplying the prevailing price of a single coin by the total quantity of coins mined up to that point. Market cap is important because in the crypto ecosystem (and beyond) it measures the success of the cryptocurrency.
In June 2023, the total market capitalization of all cryptocurrencies worldwide stands at $1.22 Trillion, displaying a 9.11% change compared to a year ago. At this moment, Bitcoin (BTC) holds the highest market cap of $569 Billion, corresponding to a Bitcoin dominance of 46.71%.
Market capitalization facilitates comparing the overall value of different cryptocurrencies, aiding in well-informed investment choices. Cryptocurrencies are usually categorized by market cap into three groups: 1) Large cap, such as Bitcoin and Ethereum, with market caps over $10 billion, perceived as lower risk due to their established growth and liquidity resilience; 2) Mid-cap, between $1 billion and $10 billion, offer potential upside but elevated risk; 3) Small-cap, under $1 billion, are highly vulnerable to market sentiment-driven fluctuations.
Volume Traded of Cryptos
The trading volume holds significant importance in the realm of cryptocurrencies and other financial instruments. It signifies the complete count of tokens or coins traded over a particular timeframe, typically denoted in the base currency (like USD or BTC) or the token (for instance, ETH or XRP) within periods like 24 hours, 7 days, or 30 days.
Cryptocurrency liquidity is often gauged by its trading volume, a measure of market activity. Elevated trading volumes denote heightened buyer and seller presence, facilitating smoother trades without abrupt price shifts. Enhanced liquidity is advantageous, streamlining trade entries or exits. A surge in trade frequency yields more data, refining price determination and aligning cryptocurrency value more accurately. Noteworthy shifts in trading volume might signify sentiment changes – increased volume suggests heightened demand or interest, while reduced volume implies waning enthusiasm or market uncertainty. When coupled with price dynamics, volume aids trend validation; a rising cryptocurrency price coupled with elevated trading volume suggests robust momentum and broader market involvement.
#1 Bitcoin (BTC)
Logo of Bitcoin
Statistics
Market capitalization: $568.57 Billion
Market price : $ 29,230.11
Number of coins in circulation: 18.30 Million
Volume traded (over the past year): $3.36 Trillion
Year founded: 2009
Overview of Bitcoin
Introduced in 2009 by an undisclosed group using the pseudonym Satoshi Nakamoto, Bitcoin marked the debut of accessible cryptocurrencies. Emerging in the aftermath of the global financial crisis, it aimed to provide an alternative to conventional financial systems, granting individuals direct control over their assets and bypassing intermediaries.
Functioning on a blockchain foundation, Bitcoin employs the Proof of Work (PoW) consensus mechanism, where miners compete to validate transactions through solving complex puzzles, ensuring system security and integrity. Initially viewed as a digital currency, Bitcoin’s role has evolved to be similar to “digital gold,” attributed to its capped supply of 21 million coins. This scarcity sets it apart from traditional currencies and positions it as a hedge against inflation and economic uncertainty, making it valuable for remittances and global trade, particularly in regions with limited banking access. Utilizing digital wallets, Bitcoin enables autonomous transactions, offering an alternative to the unbanked population and allowing them to engage in financial activities and preserve value.
Market capitalization
The figure below gives the market capitalization of bitcoin from July 2010 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of bitcoin in circulation (coin supply) by the price of bitcoin.
Market Capitalization Chart of Bitcoin
Source: Yahoo! Finance. (Computation by Author)
You can download blow the excel file used to build the figure. Historical data for Bitcoin can be downloaded from CoinMarketCap or Yahoo! Finance website.
#2 Ethereum (ETH)
Logo of Ethereum
Statistics
Market capitalization: $223.15 billion
Market price : $1856.8
Number of coins : 120.16M
Year founded: 2013
Overview of Ethereum
In 2013, Ethereum was conceptualized, and it became publicly known in 2015 through the efforts of Vitalik Buterin. Unlike its forerunner, Bitcoin, Ethereum stands as a revolutionary stride in blockchain technology. It goes beyond simple digital currency transfer, incorporating programmable smart contracts into its framework. This innovation has instigated a fresh era of decentralized applications (DApps) spanning various domains. These smart contracts, penned using the Solidity programming language, facilitate self-executing agreements based on predefined conditions, effectively reshaping industries such as finance, supply chain management, and gaming. Ether (ETH), Ethereum’s native cryptocurrency, plays a dual part, serving as a transactional medium within the network while also fueling the execution of these contracts.
At the foundation of Ethereum lies a transition from the energy-intensive Proof of Work (PoW) to a more ecologically conscious Proof of Stake (PoS) consensus protocol. This transformation, embodied in Ethereum 2.0, not only amplifies scalability and efficiency but also guarantees the platform’s endurance and its capacity to meet the growing demand for blockchain-centered solutions. The lasting legacy of Ethereum originates from its conversion of blockchain from a mere digital currency system to a versatile bedrock that stimulates innovation through decentralized applications and smart contracts.
Market capitalization
The figure below gives the market capitalization of ethereum from August 2015 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of Ethereum in circulation (coin supply) by the price of Ethereum.
Market Capitalisation Chart of Etheream
Source: Yahoo! Finance. (Computation by Author)
The historical data for Ethereum market prices can be downloaded from Yahoo! Finance website: Download the data for Ethereum
You can download blow the excel file used to build the figure. Historical data for Ethereum can be downloaded from CoinMarketCap or Yahoo! Finance website.
#3 Tether (USDT)
Logo of Tether
Statistics
Market capitalization: $83.81 Billion
Market price : $ 0.999
Circulating Supply : $83.53 Billion
Year founded: 2014
Overview of Tether
Released in 2014, Tether entered the cryptocurrency arena amidst the quest for stability within this dynamic market. Conceived as a stablecoin, Tether aimed to counteract the pronounced price volatility synonymous with cryptocurrencies like Bitcoin and Ethereum. Designed as a form of cryptocurrency, stablecoins, like Tether, are meticulously crafted to mirror the value of specific fiat currencies. Each individual Tether coin is intrinsically valued at precisely one unit of the chosen fiat currency, ensuring steadfast equivalence. This is exemplified by the fact that a solitary Tether USDT is perpetually equivalent to one U.S. dollar.
The distinctive hallmark of USDT lies in its pioneering fusion of fiat currency stability with blockchain technology. This characteristic renders it exceedingly practical for preserving or transferring value, as its unchanging price obviates concerns about depreciation. While renowned cryptocurrencies such as Bitcoin and Ethereum undergo price fluctuations based on market dynamics, USDT remains steadfastly pegged to the dollar. Upon entry into the cryptocurrency market, it behaves akin to any other currency, facilitated through blockchain technology. Thus, Tether can be procured or traded via various cryptocurrency exchanges supporting USDT.
Market capitalization
The figure below gives the market capitalization of Tether from February 2015 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of Tether in circulation (coin supply) by the price of Tether.
Market Capitalisation Chart of Tether
Source: Yahoo! Finance. (Computation by Author)
The historical data for Tether market prices can be downloaded from Yahoo! Finance website: Download the data for Tether
You can download blow the excel file used to build the figure. Historical data for Tether can be downloaded from CoinMarketCap or Yahoo! Finance website.
#4 Binance Coin (BNB)
Logo of BNB
Statistics
Market capitalization: $37.14 Billion
Market price : $241.4
Number of coins : 153.85 Million
Year founded: 2008
Overview of BNB
Binance Coin (BNB) emerged in July 2017 as a significant cryptocurrency, originating from Binance exchange’s forward-looking perspective. Initially designed to provide trading fee incentives to Binance users, the introduction of BNB coincided with the worldwide surge in cryptocurrency interest. It was conceived by tech entrepreneur Changpen Zhao, also known as CZ, and serves as the native utility token for Binance exchange, recognized as the world’s largest cryptocurrency trading platform. BNB operates on the innovative BNB Chain, which incorporates a distinctive amalgamation of Proof of Stake (PoS) and Proof of Authority (PoA) consensus mechanisms. By leveraging both these models, the network achieves comparably reduced fees and swifter transaction processing. The forthcoming BNB Chain roadmap for 2022/23 aims to enhance transaction speed, lower fees, and provide open-source capabilities, catering to developers aiming to construct within the expansive Binance ecosystem.
Market capitalization
The figure below gives the market capitalization of Binance from July 2017 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of Binance in circulation (coin supply) by the price of Binance.
Market Capitalisation Chart of BNB
Source: Yahoo! Finance. (Computation by Author)
The historical data for BNB market prices can be downloaded from Yahoo! Finance website: Download the data for BNB
You can download blow the excel file used to build the figure. Historical data for Binance can be downloaded from CoinMarketCap or Yahoo! Finance website.
#5 XRP / Ripple (XRP)
Logo of XRP
Statistics
Market capitalization: $36.82 Billion
Market price : $0.698
Number of coins : $ 54.74 Billion
Year founded: 2012
Overview of XRP
XRP is a digital currency that emerged onto the scene in 2012 as a key element of Ripple Labs’ visionary pursuit to transform cross-border financial settlements and payments. The founders of XRP, Chris Larsen and Jed McCaleb, sought to confront the inherent inefficiencies and delays that plagued conventional banking systems. Introducing XRP as a conduit between diverse fiat currencies, the aim was to enable swift and seamless international transactions. Setting it apart from its cryptocurrency peers, XRP wasn’t minted through the typical mining process ; instead, it was pre-mined, featuring a fixed quantity of 100 billion tokens. This strategic move was orchestrated to establish a stable foundation for the currency’s growth.
At the core of Ripple’s groundbreaking xRapid product, XRP plays the role of an intermediary currency, facilitating the exchange of value across various fiat currencies within financial institutions. The intrinsic currency of the XRP Ledger, a cryptographic ledger bolstered by a network of interconnected nodes, XRP empowers these institutions in their pursuit of seamless cross-currency transactions. Notably, Ripple is the architect behind this blockchain-based digital payment settlement system and the extensive crypto exchange network that encompasses it. An embodiment of innovation, Ripple harnesses its native token to facilitate the transition of traditional financial dealings from centralized databases under the jurisdiction of financial authorities to an openly accessible infrastructure.
Market capitalization
The figure below gives the market capitalization of XRP from April 2020 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of XRP in circulation (coin supply) by the price of XRP.
Market Capitalisation Chart of XRP
Source: Yahoo! Finance. (Computation by Author)
The historical data for XRP market prices can be downloaded from Yahoo! Finance website: Download the data for XRP
You can download blow the excel file used to build the figure. Historical data for XRP can be downloaded from CoinMarketCap or Yahoo! Finance website.
#6 USD Coin (USDC)
Logo of USD Coin
Statistics
Market capitalization: $26.49 billion
Market price : $1.00
Circulating Supply : 26.28 Billion
Year founded: 2018
Overview of USD Coin
The USD Coin (USDC) serves as a stable digital currency, maintaining a steadfast 1:1 value with the US dollar, regardless of the ever-changing tides of the cryptocurrency market. This stability is rooted in its robust foundation – US dollar reserves securely held within regulated US financial institutions. To ensure transparency and reliability, the acclaimed accounting firm Grant Thornton diligently monitors these reserves, releasing detailed monthly attestation reports.
USDC boasts remarkable versatility, seamlessly functioning on various blockchain platforms such as Ethereum, Algorand, Solana, Stellar, and TRON. Key features and use cases of USD Coin are rooted in its stability and ease of use. USDC facilitates seamless, near-instantaneous cross-border transactions and serves as a bridge between traditional finance and the blockchain world, enabling individuals and businesses to transfer value globally without exposure to the volatility inherent in many cryptocurrencies. With its one-to-one peg to the US Dollar, USDC serves as a valuable tool for traders and investors, allowing them to hedge against market fluctuations while remaining within the crypto ecosystem. Moreover, the stablecoin has found application in the decentralized finance (DeFi) sector, where it serves as collateral for loans, liquidity provision, and yield farming, contributing to the vibrant evolution of blockchain-based financial services.
Market capitalization
The figure below gives the market capitalization of USD Coin from October 2018 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of USD Coin in circulation (coin supply) by the price of USD Coin.
Market Capitalisation Chart of USDC
Source: Yahoo! Finance. (Computation by Author)
The historical data for USD Coin market prices can be downloaded from Yahoo! Finance website: Download the data for USD Coin
You can download blow the excel file used to build the figure. Historical data for USD Coin can be downloaded from CoinMarketCap or Yahoo! Finance website.
#7 Dogecoin (DOGE)
Logo of Doge Coin
Statistics
Market capitalization: $10.88 billion
Market price : $0.077
Circulating Supply: 140.52 Billion
Year founded: 2013
Overview of Doge Coin
Originally conceived as a playful jest aimed at the crypto community, Dogecoin emerged as a whimsical creation inspired by a popular meme. Crafted by the collaborative efforts of software engineers Billy Marcus and Jackson Palmer, the genesis of Dogecoin occurred in the latter part of 2013. Operating on an autonomous blockchain unique to itself, Dogecoin’s digital ledger undergoes ceaseless updates to encompass novel transactions, employing cryptographic techniques to ensure the security of these transactions.
The foundational framework of Dogecoin’s blockchain is rooted in the proof of work consensus mechanism, which necessitates miners to deploy computational prowess in solving intricate mathematical puzzles. This endeavor facilitates the processing and inscription of transactions onto the blockchain. In return for their contributions to upholding the integrity of the blockchain, miners are rewarded with additional Dogecoin holdings, affording them the choice to retain or trade these assets within the open market.
While Dogecoin can feasibly be employed for monetary transactions and acquisitions, its role as a dependable store of value remains compromised. This deficiency primarily arises from the absence of a predetermined upper limit on the quantity of Dogecoins that can be mined, thus inherently imbuing the cryptocurrency with a pronounced inflationary trait.
Market capitalization
The figure below gives the market capitalization of Doge Coinfrom July 2014 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of Doge Coin in circulation (coin supply) by the price of Doge Coin.
Market Capitalisation Chart of Doge Coin
Source: Yahoo! Finance. (Computation by Author)
The historical data for Doge Coin market prices can be downloaded from Yahoo! Finance website: Download the data for DogeCoin
You can download blow the excel file used to build the figure. Historical data for Doge Coin can be downloaded from CoinMarketCap or Yahoo! Finance website.
#8 Cardano (ADA)
Logo of Cardano
Statistics
Market capitalization: $10.77 Billion
Market price : $0.3076
Circulating Supply : 35.03 Billion
Year founded: 2015
Overview of Cardano
Launched in September 2017 by Charles Hoskinson, one of Ethereum’s co-founders, Cardano strives to manifest as a third-generation blockchain initiative, extending the groundwork laid by Bitcoin (first generation) and Ethereum (second generation). Positioned as an eco-friendly and scalable smart contract platform, Cardano (ADA) operates on a proof-of-stake consensus mechanism known as Ouroboros, effectively validating transactions while minimizing energy consumption. The development landscape of Cardano relies on the utilization of the Haskell programming language, an attribute attributed to facilitating an evidence-centric development approach, subsequently ensuring unmatched security and reliability.
The central ambition of Cardano orbits around the facilitation of smart contracts, empowering developers to craft a diverse array of decentralized financial applications, novel cryptocurrency tokens, interactive games, and more. The architecture of the Cardano blockchain is bifurcated into two distinct tiers: the Cardano Settlement Layer (CSL) and the Cardano Computing Layer (CCL). The former houses the record of accounts and their corresponding balances, additionally serving as the domain where Ouroboros-based consensus mechanisms validate transactions. On the other hand, the latter, namely the CCL, serves as the execution ground for all computations related to blockchain applications, primarily driven by the functionality of smart contracts. This partitioning of the blockchain into dual strata endeavors to empower the Cardano network to effortlessly process a substantial volume of up to a million transactions per second.
Market capitalization
The figure below gives the market capitalization of Cardano from September 2017 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of Cardano in circulation (coin supply) by the price of Cardano.
Market Capitalisation Chart of Cardano
Source: Yahoo! Finance. (Computation by Author)
The historical data for Cardano market prices can be downloaded from Yahoo! Finance website: Download the data for Cardano
You can download blow the excel file used to build the figure. Historical data for Cardano can be downloaded from CoinMarketCap or Yahoo! Finance website.
#9 Solana (SOL)
Logo of Solana
Statistics
Market capitalization: $9.62 Billion
Market price : $24.45
Circulating Supply : 405.76 Million
Year founded: 2020
Overview of Solana
Solana, an up-and-coming cryptocurrency, has drawn substantial attention in the world of blockchain. Launched in 2020 by Anatoly Yakovenko, a former Qualcomm engineer, Solana’s coin was meticulously crafted to tackle the scalability and performance limitations that earlier blockchain platforms such as Ethereum had encountered. Solana’s developmental journey gained rapid traction as it aspired to bring about a transformation in the realm of decentralized finance (DeFi). This transformation was to be realized through swifter transaction speeds and reduced fees in comparison to its counterparts. This innovative approach captivated both investors and developers, propelling Solana into the spotlight as a highly promising contender in the expansive landscape of blockchain technology.
At its core, Solana operates as a crypto-computing platform with a distinct objective: to achieve remarkable transaction speeds without compromising decentralization. This exceptional speed translates into a notable reduction in congestion and fees. By maintaining these high speeds and low fees, Solana’s ultimate aim is to scale its capabilities to a level where it can rival centralized payment processors like Visa. The primary cryptocurrency associated with Solana is known as SOL. This digital asset serves multiple purposes, including covering transaction fees and facilitating the staking process. Additionally, SOL holders possess the privilege of participating in voting for upcoming upgrades. Notably, SOL is accessible for trading on exchanges such as Coinbase, providing users with an avenue to engage with this evolving crypto phenomenon.
Market capitalization
The figure below gives the market capitalization of Solana from September 2017 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of Solana in circulation (coin supply) by the price of Solana.
Market Capitalisation Chart of Solana
Source: Yahoo! Finance. (Computation by Author)
The historical data for Solana market prices can be downloaded from Yahoo! Finance website: Download the data for Solana
You can download blow the excel file used to build the figure. Historical data for Solana can be downloaded from CoinMarketCap or Yahoo! Finance website.
#10 Tron (TRX)
Logo of Iron
Statistics
Market capitalization: $7 billion
Market price : $0.078
Circulating Supply : 89.52 Billion
Year founded: 2017
Overview of Tron
In 2017, Tron launched as a blockchain project with a unique approach, foregoing cryptographic advancements in favor of integrating existing elements like dApps, smart contracts, and tokens pioneered by other projects. Its standout strategy was its Asia-focused market penetration, leveraging its founder Justin Sun’s prominence. Fueled by an engaged community, Tron’s futuristic vision yielded success.
Initially an Ethereum-based ERC-20 token, Tron has transitioned into an independent cryptocurrency. At its core, the Tronix network champions decentralization, freeing blockchain data from central control. Content creators earn TRX tokens for their contributions and can even devise custom tokens for the Tron network, enhancing dApp experiences. With plans to introduce decentralized games and a proof-of-stake consensus mechanism manned by super representatives, Tron’s rapid block additions and support for thousands of transactions per second further underscore its distinctive position in the cryptocurrency realm, complemented by its empowering content creator rewards and ownership model.
Market capitalization
The figure below gives the market capitalization of Tron from August 2017 to September 2024. At a given point of time, market capitalization is obtained by multiplying the number of Tron in circulation (coin supply) by the price of Tron.
Market Capitalisation Chart of Tron
Source: Yahoo! Finance. (Computation by Author)
The historical data for Tron market prices can be downloaded from Yahoo! Finance website: Download the data for Tron
You can download blow the excel file used to build the figure. Historical data for Tron can be downloaded from CoinMarketCap or Yahoo! Finance website.
Why should I be interested in this post?
This blog post provides valuable insights into the current landscape of cryptocurrencies. As the digital financial world continues to evolve, learning about the top 10 cryptocurrencies by market capitalization helps us understanding the leading cryptocurrencies and their market standings can provide crucial information for both seasoned investors and newcomers. Whether you’re seeking potential investment opportunities or simply staying informed about the trends shaping the financial future, this article can offer a concise overview of the top-performing cryptocurrencies, making it a must-read for anyone looking to navigate the complex world of digital assets.
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.
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.
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
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.
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 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The Golden Boy: Une immersion dans l’univers des banques d’investissement
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.
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.
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
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.
My Internship Experience at SmartStream Technologies (Fintech)
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
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.
My Internship Experience as a Market Analyst at L’Oréal
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
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.
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.
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.
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)
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.
