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INTRODUCTION TO CORPORATE FINANCE - Coggle Diagram
INTRODUCTION TO CORPORATE FINANCE
What is Corporate Finance :-
:check: Allocation of the resources to maintain and create wealth through potential activities such as investment.
:check: It is to see how the firms manage its short-term assets and liabilities.
:check: Involves the management of company's resources to its full potential.
Financial Management :-
:star: Maintenance and creation of economic value or wealth
:star: Concerned with the acquisition and use of funds by business firm
:star: Deals with financial decisions for the business firm.
Relationship between Finance and Accounting
ACCOUNTING :
:fire: It is concerned with score keeping
:fire: Accountant prepares the accounting reports based on the accrual method.
:fire: It is deals with the past data.
FINANCE :
:explode: It is aimed to maximize value
:explode: Financial manager focus on the cash flows
:explode: It is concerned with the future
Roles of Financial Manager and Management Decisions
Roles of Financial Manager :
:check: Selecting projects that create value.
:check: Making smart financing decisions
Financial Management Decisions :
:pencil2: Capital Budgeting
The process of planning and managing firms' long-term investment
:pencil2: Capital Structure
Manager concerns on how the firm obtains and manage the long-term financing
:pencil2: Working Capital Management
Managing working capital to ensure the firm day-to-day activities has sufficient resources to continue its operations.
Sources of Finance :
:explode: Borrowing
Long-term debt
Short-term debt
:explode: Capital
Common Equity (Retained Earning & Issues new shares
Preferred Stock
Functions of Financial Manager
:star: Make investment decisions.
:star: Forecasting and planning
:star: Make financing decisions
Goals of Financial Management :
:check: Minimization of risk
:check: Maximization of sales
:check: Maximization of profits
:check: Maximization of share price
Agency Problem & Control of the Corporation
Agency Problem :
:red_flag: Agency relationship
Principal hires an agent to represent his/her interest
:red_flag: problem - conflict of interest between principal and agent.
Control of the corporation
:star: The election of BOD
Control of the firm ultimately rest with stockholder
:star: Replacement through takeover
Firms that poorly managed are more attractive to be replaced.
Financial Market
Primary Market
Issuance of a security for the first time.
Secondary Market
Buying and selling of previously issued securities
Securities may be traded in either a dealer or auction market
Forms of Business Organisation :
:fire: Sole Proprietorships
Oldest forms of business which owns by 1 individual
-Personally responsible for all debts
-Easy to form.
:fire: Partnership
Have more than 1 owner
Profit and loss sharing by mutual agreement
Can raise more capital
:fire: Corporation
Legally functions separate from its owner
corporation can be sued, can sue , purchase and sell property.
Shareholder liability restricted to the amount of investment in company