Please enable JavaScript.
Coggle requires JavaScript to display documents.
Concept Map on Advanced Corporate Finance - Coggle Diagram
Concept Map on Advanced Corporate Finance
Capital structure and cost of capital.
Found in the balance sheet of the company
The ideal capital structure is the best mix of debt and equity financing that maximizes a company’s market value while also minimizing its cost of capital.
Aggresive
More debt
Conservative
Less debt
Mix of a firm's long-term capital—a mix of debt and equity—that it uses to fund its ongoing operations and future growth.
Debt (from lenders) and equity (via investors) are two of the main ways a company can raise money
Debt
short-term borrowing, long-term debt, and a portion of the principal amount of operating leases and redeemable preferred stock
Equity
common and preferred stock, plus retained earnings
Measure
Leverage indicators
WAAC
Mergers and acquisitions
The motivations for this are market share expansion and diversification.
Types: Horizontal, Vertical and Conglomerate Mergers.
They look for strategy for consolidate the companies
Financing Methods
cash transactions.
Stock swaps.
Risks
Overestimating synergies
financial risks
Dividend policies.
How a company will distribute its dividends to its shareholders.
How often ?
When ?
How much ?
Types of policies
No dividend
Hybrid
Residual
Constant
Stable
Dividends
Portion of the corporate earnings or profits that companies want to share with their investors.
Example
A company earns profits of $50,00,000 in a financial year and, as per its dividend policy, decides to distribute 30% of these profits as dividends.
Total dividend paid out will be $15,00,000
If the company has 5,00,000 outstanding shares, as per the company’s dividend policy, will be $3 per share.
The remaining profits, ($35,00,000) will be reinvested in the company
Long-term financing (debt and equity issuance) :tada:
Equity Financing: Involves selling company shares, with no repayment obligation it requires sharing ownership and profits.
Debt Financing: Involves borrowing money, with a fixed repayment schedule and interest, maintaining full control.
Desicion
The choice depends on cash flow, control preferences, and funding availability. Companies often use a combination of both.
Debt: Loans, credit lines, SBA loans, personal loans.
Equity: Angel investors, crowdfunding, IPOs, venture capital
key
Types of Financing: Companies can raise capital through equity financing (selling ownership) or debt financing (borrowing money).
Debt can be cheaper if the business performs well, while equity avoids repayment but dilutes ownership.
Business ValuationPurpose
Valuation Approaches: Asset-Based Approach, Income-Based Approach and Market-Based Approach.
Key Components of Valuation.
: Revenue and cost projections
WACC
Purpose: M&A transactions and Investment decisions
Challenges in Valuation
Estimation errors
Market volatility
working capital management :fire:
Key
a business process that helps companies make effective use of their current assets and optimize cash flow :explode:
Working capital management ensures sufficient cash flow for short-term costs and debts by managing assets like accounts receivable, accounts payable, inventory, and cash. It involves tracking key ratios such as working capital and inventory ratios.
Effective management improves cash flow and earnings by using resources efficiently, though strategies may be impacted by market fluctuations or short-term trade-offs.
types
Regular working capital
Reserve working capital
Permanent working capital
Fluctuating working capital
Gross working capital
Net working capital