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Lecture1 - Lecture 1 Overview of Corporate Finance and...

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Lecture 1 - Overview of Corporate Finance and Financial Market by Diep Duong 26 JAN 2010
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Table of contents 1 Corporate Finance and Forms of Business Organization Corporate Finance Forms of Business Organization 2 Financial Markets
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An Overview in Macro Context () Lecture 1 - Overview of Corporate Finance and Financial Market 26 JAN 2010 1 / 23
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Corporate Finance and Forms of Business Organization Corporate Finance What is Corporate Finance ? Corporate Firm and Finance: To run a firm, capital mobilization and management are crucial. It’s natural to ask simple questions: Where and how does firm get money? In the management of the firm, how does firm manage it’s pool of cash ? .... Though questions are simple, the answers are complicated. Formally, Corporate finance studies ways to answer 3 questions 1 What long-term investments should the firm take on? (Capital budgeting) 2 Where will we get the long-term financing to pay for the investment? (Capital structure) 3 How will we manage the everyday financial activities of the firm? (Working capital) () Lecture 1 - Overview of Corporate Finance and Financial Market 26 JAN 2010 2 / 23
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Corporate Finance and Forms of Business Organization Corporate Finance A Sample Simplified Organizational Chart Figure: () Lecture 1 - Overview of Corporate Finance and Financial Market 26 JAN 2010 3 / 23
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Corporate Finance and Forms of Business Organization Corporate Finance Financial Manager The Chief Financial Officer (CFO) or Vice-President of Finance coordinates the activities of the treasurer and the controller. The controller handles 1 cost 2 financial accounting 3 taxes 4 information systems The treasurer handles 1 cash management 2 financial planning 3 capital expenditures () Lecture 1 - Overview of Corporate Finance and Financial Market 26 JAN 2010 4 / 23
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Corporate Finance and Forms of Business Organization Corporate Finance Whys financial management important ? Firm has values ? How can a firm borrow ? Can the firm owners sell the firm? Then How ? Why could Lehman borrow 120 billion dollars between 06 and 07 ? Good Reputation? What else? () Lecture 1 - Overview of Corporate Finance and Financial Market 26 JAN 2010 5 / 23
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Corporate Finance and Forms of Business Organization Corporate Finance Financial Management Decisions 1 Capital budgeting Firm’s investments in fixed assets. Future cash flows from investment 1 size 2 timing 3 riskiness 2 Capital structure mix of debt (borrowing) and equity (ownership interest) used by a firm answer questions 1 What are the least expensive sources of funds? 2 Is there an optimal mix of debt and equity? 3 When and where should the firm raise funds? 3 Working capital management 1 Managing short-term assets and liabilities 2 Answer questions 3 How much inventory should the firm carry?
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