FUNDAMENTALS OF CORPORATE FINANCEFUNDAMENTALS OF CORPORATE FINANCE

saklviTüal½yCatiRKb;saklviTüal½yCatiRKb;RKgRKgNational University of ManagementNational University of Management

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vkmµvkmµ 2011 - 20122011 - 2012

Lecturer : Chey VongLecturer : Chey Vong

MBA PROGRAMMBA PROGRAM

Corporate Finance 1

Chapter 1Chapter 1 Introduction to Corporate FinanceIntroduction to Corporate Finance

Chapter 2Chapter 2 Financial Statements, Taxes, and Cash FlowFinancial Statements, Taxes, and Cash Flow

Chapter 3Chapter 3 Working with Financial StatementsWorking with Financial Statements

Chapter 4Chapter 4 Introduction to Valuation: The Time Value of MoneyIntroduction to Valuation: The Time Value of Money

Chapter 5Chapter 5 Discounted Cash Flow ValuationDiscounted Cash Flow Valuation

Chapter 6Chapter 6 Interest Rates and Bond ValuationInterest Rates and Bond Valuation

Chapter 7Chapter 7 Stock ValuationStock Valuation

Chapter 8Chapter 8 Net Present Value and Other Investment CriteriaNet Present Value and Other Investment Criteria

Chapter 9Chapter 9 Return, Risk, and the Security Market LineReturn, Risk, and the Security Market Line

Chapter 10Chapter 10 Cost of CapitalCost of Capital

Table of Contents

Chapter OrganizationChapter Organization

Corporate Finance and the Financial ManagerCorporate Finance and the Financial Manager

Forms of Business OrganizationForms of Business Organization

The Goal of Financial ManagementThe Goal of Financial Management

The Agency Problem and Control of the CorporationThe Agency Problem and Control of the Corporation

Financial Markets and the CorporationFinancial Markets and the Corporation

Summary and ConclusionsSummary and Conclusions

Corporate Finance 2

Chapter 1 Introduction to Corporate Finance

Corporate FinanceCorporate Finance

InvestmentsInvestments

Financial InstitutionsFinancial Institutions

International FinanceInternational Finance

Corporate Finance 3

The Four Basic Areas of Finance

Imagine that you were to start your own business . Imagine that you were to start your own business .

No matter what type you started , you would have to No matter what type you started , you would have to answer the following three questions :answer the following three questions :

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 ?

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 ?

3- How will you manage your everyday financial activities such as collecting from customers and paying suppliers ?

Corporate Finance 4

A Simplified A Simplified Organizational Organizational Chart Chart

Chairman of the Board andChief Executive Officer (CEO)

Board of Directors

President and ChiefOperations Officer (COO)

Vice President Marketing

Vice PresidentFinance (CFO)

Vice President Production

Treasurer Controller

Cash Manager Credit Manager Tax ManagerCost Accounting Manager

CapitalExpenditures

FinancialPlanning

FinancialAccounting Manager

Data Processing Manager

Corporate Finance 5

Forms of Forms of Business Business OrganizationOrganization

Corporate Finance 6

Business

PartnershipPartnership CorporationCorporationProprietorshipProprietorship

The Goal of Financial ManagementThe Goal of Financial Management

If we were to consider possible financial goals , we might find some ideas like the following :

Corporate Finance 7

Avoid financial distress and bankruptcy Beat the competition Maximize sales or market share Minimize costs Maximize profits Maintain steady earnings growth

Survive

Agency Relationship

The relationship between stockholders and management is called an agency relationship . Such a relationship exists whenever someone (the principal) hires another (the agent) to represent his/her interests .

Corporate Finance 8

What is the role of financial markets in What is the role of financial markets in corporate finance?corporate finance?

Cash flows to and from the firmCash flows to and from the firm

Money markets and capital marketsMoney markets and capital markets

Primary vs. secondary marketsPrimary vs. secondary markets How do financial markets benefit How do financial markets benefit

society?society?

Corporate Finance 9

Financial Markets

Cash Flows Between the Firm and the Financial MarketsCash Flows Between the Firm and the Financial Markets

Total Value ofFirm’s Assets

Total Value of the Firmto Investors in

the Financial Markets

B.

Firm invests

in assets

Current Assets

Fixed Assets C. Cash flow from firm’s assets

D. Government

E. Retained cash flows

A. Firm issues securities

F. Dividends and

debt payments

Financial Markets

Short-term debtLong-term debtEquity shares

Corporate Finance 10

B. Firm investsIn assets

Current assetsFixed assets

Financial Markets

Short-term debtLong-term debtEquity shares

1. Who performs the financial management 1. Who performs the financial management function in the typical corporation?function in the typical corporation?

2. What are the major advantages 2. What are the major advantages and disadvantages of the corporate and disadvantages of the corporate form of organization?form of organization? 3. Why is shareholder wealth 3. Why is shareholder wealth maximization a more appropriate maximization a more appropriate goal than profit maximization?goal than profit maximization?

Corporate Finance 11

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