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INTRODUCTION TO CORPORATE FINANCE - Coggle Diagram
INTRODUCTION TO
CORPORATE FINANCE
Corporate
Finance
Involves the management of company’s resources the to its full potential
Is all about acquisition and allocation of firms’ resources to maintain and create wealth through present & potential activities
such as
what long-term investment,
Should the firm take?
How will firm manage its short-term assets & liabilities.
Where the firm will get fund or capital?
Corporation
business organizations which a legal “person” separate and distinct from its owners.
Finance
Finance is the management of money and any other assets – investing, borrowing, lending, budgeting, forecasting and saving.
FINANCIAL MANAGEMENT
Maintenance & creation of economic value or wealth.
Broadly concerned with the acquisition & use of funds by a business firm.
Deals with financial
decisions.
Has a close relationship to economics & accounting.
RELATIONSHIP BETWEEN
FINANCE & ACCOUNTING
FINANCE
Finance is aimed at value maximizing.
The focus of the financial manager is on cash flows.
Finance is concerned mainly with the future.
ACCOUNTING
Concerned with score keeping.
The accountant prepares the accounting reports based on the accrual method.
Accounting deals primarily with the past.
ROLES OF FINANCIAL MANAGER
Selecting projects that create value
Making smart financing decisions
FINANCIAL MANAGEMENT DECISIONS
Capital
Budgeting
The process of planning
& managing’s firm long-term investments
Capital
Structure
Manager concerns ways in which the firm obtains and manage the long-term financing.
Working Capital
Management
Managing WC is day-to-day activity that ensures the firm has sufficient resources to continue its operations and avoid costly interruptions
Source of
Finance
Borrowing
Long-Term
debt
Short-Term
debt
Capital
Common
Equity
Retained
Earning
Issues new
shares
Preferred
Stock
GOALS OF FINANCIAL MANAGEMENT
Minimization of Risk
Maximization of Sales
Maximization of Profits
Maximization
of Share Price
FINANCIAL
MARKET
Primary Market
Issuance of a security for the first time
Secondary Markets
Buying and selling of previously issued securities
Securities may be traded in either a dealer or auction market
FORMS OF BUSINESS
ORGANISATION
Sole Proprietorships
Oldest form of business
Owns by 1 individual
Personally, responsible for all the debts
Easy to form Termination occurs on owner’s death or by owner’s choice
Partnership
Have more than 1 owner
Profit and loss sharing by mutual agreement
Can raise more capital
Corporations
Legally functions separate
and apart from its owners
Legally functions separate
and apart from its owners