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Corporate Finance Overview

1) Corporate finance deals with financial decision making and tools used by corporations to maximize value and manage financial risks. 2) Core functions of finance include capital budgeting, sourcing capital and dividends, cash management, and monitoring financial performance. 3) The role of a finance manager involves cash flow management, negotiating with lenders, cost control, and ensuring compliance while minimizing business and financial risks.

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666 views12 pages

Corporate Finance Overview

1) Corporate finance deals with financial decision making and tools used by corporations to maximize value and manage financial risks. 2) Core functions of finance include capital budgeting, sourcing capital and dividends, cash management, and monitoring financial performance. 3) The role of a finance manager involves cash flow management, negotiating with lenders, cost control, and ensuring compliance while minimizing business and financial risks.

Uploaded by

adi809here
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Functions of Finance

• Life blood of business (passive role except main


line for banks & financial institutions)
• To make money, one requires money (example
of a fruit vendor)
• Lubricant to keep engine moving (Reliance)
• Growth pangs (liquidity crisis despite profitability
eg JM)
• Examples of Subhiksha Stores, Lehman Bros,
CitiBank, General Motors
Corporate Finance Overview
-Business activity concerned with planning,
raising, investing & monitoring funds to
achieve financial objectives of a corporate
entity

Corporate finance is an area of finance


dealing with the financial decisions
corporations make and the tools and
analysis used to make these decisions. The
primary goal of corporate finance is to
maximize corporate value while managing
the firm's financial risks.
Finance Functions
• Capital Budgeting- long term investments
• Sourcing-capital structure & dividend pay-
out
• Day to day cash management- working
(say moving…) capital & minimum idle
cash

Question: Is core working capital short term


or long term for a going concern ?
Role of Finance Manager
• Management & custody of assets; insurance
• Cash flow management (liquid cash deployment)
• Negotiations with bankers & institutions
• Monitoring & reporting periodically financial
performance (mirrored in MIS reports) &
suggesting remedial measures; Cadbury’s
example
• Cost control; activity base costing
• Tax planning
• Monitoring stock prices and external events
• No longer only a bean counter
Role of Finance Manager (contd.)
• Ever changing
• Computerisation (no longer Mehtaji busy
tallying Trial Balance at B. Dyeing in 70s)
Qualities of a Finance Manager
• Vision & foresight
• Out of box thinking
• Personality
• Communication & presentation skills
• Initiative
• Intelligent & smart
• Managerial skills
• Sound technical knowledge
• Confidence
Relationship between Finance &
Other Functions
• Class to form groups : Production {1-7},
Engineering Services {8-14}, Sales &
Marketing {15-21}, Corporate {22-28},
HR{29-35},IT{36-42}, Admin{43-49},
Purchase{50-56}
• Present the two way relationship (one
presenting from Finance angle and
another from ,say, Production angle)
Financial Management Covers….
• Capital investment decisions; Maximise ROI= (NP x Sales)
( Sales CE )
• Capital structure & raising of funds
• Utilisation of funds
• Cash flow management
• Working capital management
• Controlling risk & survival
• Goodwill & image building (helps better rating by
bankers & suppliers, employee retention
• Profit vs Wealth Maximisation………
Profit vs Wealth Maximisation
• Market capitalisation = no. of shares x
market price per share
• What do investors look forward to :
3. Appreciation in share price
4. Stability in earning
5. Dividend
6. Transparency (Enron & Satyam vs
Infosys)
Business Risk
• Demand
• Sales Price
• Input cost
• Ability to hike output price to input rise
• Develop new products timely & successfully
• Foreign (country & currency)
• Fixed cost (operating leverage)
• Labour
• Natural calamity (fire, quake, riot, flood)
• Technology obsolescence
• Credit or default risk
Finance Risk
• Financial leverage (high debt :equity)
• Interest rate
• Inflation
• Liquidity
• Bankruptcy
All finance & business risks can be classified into
diversifiable & non diversifiable.
Steps to minimise risks and avoid intolerable risks
New Role of CFO
• Corporate Communication (investor
guidance, transparency) & Corporate
Governance
• Strategist- quick decisions (Capital
budgeting, financing structure,….)
• Deal Maker (Tata Corus)
• Chief Risk Officer

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