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The Father of (Modern) Finance

Commonly known for his work on asset pricing, efficient-market hypothesis, and portfolio theory, Eugene Fama, a 2013 Nobel Laureate in economic sciences, laid the foundation of modern finance; to this day his research on markets is used both academically and professionally by some of the most prestigious institutions on the planet. His work on the correlations between risk and expected return has laid the foundations for how incoming stock brokers learn the tools of the trade. Additionally, Mr. Fama has published a copious amount of articles in various academic journals making him the most accredited researcher in the field of economics. Although it is a relatively well known fact that nobody knows for sure whether or not the market is going to to go up down or 'sideways', Eugenes' research led him to something that we now call market trends. In theory, Eugene discovered that by making a graph with time representing "X" and stock price representing "Y", brokers can analyze the trends of a stock (usually in groups of threes) to have the greatest chance of making a large return on a stock. In other words, by collecting the new information on a stock (or group of them), an individual can better predict share prices that would be too difficult to comprehend otherwise. While this sounds like a simple concept, his discovery saved firms billions of dollars on expensive research which lead to results that weren't as efficient. Today, his overarching research study is known and taught as the efficient market hypothesis.

Debt Finance
Defined by 'The Economic Times', Debt Finance is "When a company borrows money to be paid back at a future date with interest it is known as debt financing. It could be in the form of a secured as well as an unsecured loan. A firm takes up a loan to either finance a working capital or an acquisition."

In the same way that you can take out a lien on your car or borrow money against your home (known as a home equity loan), debt financing allows companies to borrow money to fund their immediate needs to do business without losing control (equity) of their company. The process is quite simple; the loan given to a company is time-bound with a fixed amount of interest set onto the principle with a set amount of time (payment periods) agreed upon by both parties fixed with the loan. Payments can be made monthly, quarterly, half-yearly, or even at the very end of the payment period. On top of everything aforementioned, if a loan is not collateralized, the line of credit will be a far smaller amount than what a company is approved for (through the use of a credit check).

Equity Finance
Equity is defined as cash paid into businesses by investors who in return want a percentage (the ability to have a say in how the company operates) of the company. Additionally, investors put finances into companies who need capital with the hopes of sharing with the companies profits.

Companies can finance its operations through equity financing, debt financing (mentioned above), or through a combination of the two. Equity transactions result in the receipt of cash in return for shares of stock. Stock must be issued proportionally to the amount of cash invested in a company for the purpose of attracting other investors if the need arises not to mention the preservation of the capital and work that the original investors of the company have invested already.

Equity Dynamics:

Defined as the dynamics of investing cash in a business, whether it be the risk or reward associated with it; this aspect of finance ties hand in hand with the bankruptcy law. Essentially, when a company declares bankruptcy, the first to get paid are the creditors.