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Unit I

This document provides an overview of the FIN 201 course on fundamentals of corporate finance, including defining key concepts like capital budgeting, capital structure, and working capital management. It also outlines the role of the finance manager in making long-term investment, financing, and daily financial decisions. The goal of financial management is to maximize shareholder value and firm performance.

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22 views24 pages

Unit I

This document provides an overview of the FIN 201 course on fundamentals of corporate finance, including defining key concepts like capital budgeting, capital structure, and working capital management. It also outlines the role of the finance manager in making long-term investment, financing, and daily financial decisions. The goal of financial management is to maximize shareholder value and firm performance.

Uploaded by

dorjidelmau
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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FIN 201:Fundamentals of Corporate Finance

Module Tutor: Sonam Zangmo


Room Number:217
Unit I: Nature of Corporate Finance
Learning outcome
1 What is Finance?

2 Function of Finance

3 What is corporate Finance ?

4 Scope of corporate Finance

5 Financial Management

6 Objective of Financial Management

Finance Manager Role


7
What things come to your mind
you were to start your own business

FIXED ASSETS

CAPITAL

CURRENT ASSETS
& LIABILITIES
What is Finance?

Finance is the study of value.

Why Finance?

 Finance is the life-blood of business, without finance neither


any business can be started nor successfully run.
 e.g., Crowdfunding
 Aims to provide an alternative financing model for start-ups,
new business ventures and cottage and small industries.
Finance Function

Financing
Decision
2

Working
Investment Capital
Decision 1 3 Manageme
nt

4
Dividend
Decision
1
What is Corporate Finance?

1. What long-term investments should you take on?


That is, what lines of business will you be in and what sorts of buildings, machinery, and
equipment will you need?
(CAPITAL BUDGETING)
2. Where will you get the long-term financing to pay for your
investment?
Will you bring in other owners or will you borrow the money?
(CAPITAL STRUCTURE)
3. How will you manage your everyday financial activities such
as collecting from customers and paying suppliers?
(WORKING CAPITAL MANAGEMENT)
4. Should dividends be paid? If so, how much?
(DIVIDEND DECISION)
1
What is Capital Budgeting?

 The Process of planning and managing a firm’s long term


investment.
 The Finance Manager tries to identify investment
opportunities that are worth more to the firm then they cost
to acquire. This means that the value of the cash flow generated
by an asset exceeds the cost of that asset. Creating value for the
firms shareholders. The types of the opportunities depend on
the nature of firm’s business.

 Financial managers must be concerned not only with how


much cash they expect to receive, but also with when they
expect to receive it and how likely they are to receive it.
Evaluating the size, timing, and risk of future cash flows is the
essence of capital budgeting.
1
What is Capital Structure?

 The mixture of long-term debt and equity the firm uses to


finance its operations/fixed assets.
 The financial manager has two concerns in this area;
 First, how much should the firm borrow and where? That is,
what mixture of debt and equity is best?
What percentage of the firm’s cash flow goes to creditors and
what percentage goes to shareholders?
 Second, what are the least expensive sources of funds for the
firm?
1
What is Working Capital Management?

 How much cash and inventory should we keep on hand?

 Should we sell on credit? If so, what terms will we offer, and to


whom will we extend them.

 How will we obtain any needed short-term financing? Will


we purchase on credit, or will we borrow in the short term and
pay cash? If we borrow in the short term, how and where should
we do it?
Financial Management
Financial Management is an area of financial decision making
harmonizing individual motives and enterprise goals.”
- Weston and Brigam

Financial management is the ways and means of managing


money. i.e. the determination, acquisition, allocation and
utilization of financial sources usually with the aim of
achieving some particular goals or objectives.
Goal’s of Financial Management

To maximizing the value of the firm thereby the value of the owners i.e., equity shareholders in a
company is maximized.

The financial manager in a corporation makes decisions for the stockholders of the
firm.
Objectives of Financial Management

Survive

Make competition irrelevant

Maximize sales

Minimize costs

Maximize profits
Firms privately owned and has no traded stock, the goal
should be to maximize the value of the owners’ equity.

Firms with publicly traded stock, to maximize shareholders equity

Maintain steady earnings growth


Finance Manager’s Role

Finance Managers try to answer some or all of these questions.


 What long-term investments should the firm undertake?
 Where will we get the long-term financing to pay for the
investment?
 How will we manage the every day financial activities of the firm?
Organization Chart of Finance Department
• CFO as a Controller :Perform functions
relating to Budgeting, Internal Audit, Planning
and control, Taxation and Financial
Accounting. They manage and control the
assets of the firm.
• CFO as a Treasurer: Concerned with day to day
financial Operations. He take care of the cash
management and credit Administration of the firm.
They plan the raising of funds for short term and long
term requirements. CFO is concerned with flow of
fund in the organization and maintain good relations
with banking and financial institutions
Tax Structure & Financial Environment

30%

Income Tax Act of Kingdom of Bhutan, 2017


Class Activity

• “Finance function is concerned with the allocation of funds to


specific assets and obtaining the best mix of financing in
relation to overall valuation of the firm.”Discuss.
• What role a finance manager play in a modern firm?
How to solve Case Study?

1. Read the case carefully


2. Become familiar with the topic
• Get involved in characters, and leading players of that case.

3. Form an idea about the basic problem.


• Try to understand the statement of the problem in the cases
study.
• Form an idea about the basic need, or problem or objective of
the case study.
4. Read it again
• Read it again.
• Make a model of the basic problem it contain.
• Important & relevant facts, having a bearing on the problem.
5. Mention the statements
• Mention the Statements which would help define the problem
more accurately help and nature of decisions required.
6. Understand the case study environment
• Understand the environment in which the case is set by noting
down constraints, opportunities resources, etc.
7. Real-life problem!
• You may have real-life problems which will have seldom all
the information or adequate time at his disposal.
8. Gap and realistic assumption
• Identify the shortfall of information & make a realistic
assumption in the light of the environment. You should
develop the skill of taking time-bound decisions

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