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INTRODUCTION TO CORPORATE FINANCE - Coggle Diagram
INTRODUCTION TO CORPORATE FINANCE
Corporate Finance
Involves the management of company's resources to its full potential
About acquisition and allocation of firms' resources to maintain and create wealth through present and potential activities such as long term investment
Financial Management
Maintenance & creation of economic value or wealth
Broadly concerned with the acquisition and use of funds by a business firms
Deals with financial decisions
Has a close relationship to economics and accounting
RELATIONSHIPS BETWEEN FINANCE & ACCOUNTING
Accounting
Concerned w score keeping
The accountant prepare the accounting reports based on the actual method
Accounting deals primarily w the future
Finance
Finance is aimed at value maximizing
The focus of the financial manager is on cash flows
Finance is concerned mainly with the future
Roles of financial manager and management decisions
ROLES
Selecting projects that create value
Making smart financing decisions
Financial Management Decisions
Capital budgeting
The process of planning
and managing’s firm longterm investments
Capital Structure
Managers 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 cont. its operations & avoid costly interruptions
Sources of Finance
Borrowing
Long term debt
Short term debt
Capital
Common equity
Retained Earning
Issues new shares
Preferred Stock
Functions of a Financial Manager
Forecasting & planning
Investment Decisions
Financing decisions
Dealing with Financial Markets
Dividend policy
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 Market
Buying and selling of previously issued securities
Securities may be traded in either a dealer or auction market
FORMS OF BUSINESS ORGANIZATIONS
SOLE PROPRIETORSHIPS
Owns by 1 indv, responsible for all the debts, easy to form, termination occurs on owner's death or by owner choice
Partnership
Have 1 or more owne, profit and loss sharing by mutual agreement, can raise more capital
Corporations
Legally separate and apart from its owners
Shareholder's liability is restricted to the amount of investment in company
Life of corporation does not depend on the status of its owners. Ownership can be easily transferred.