What is Corporate Finance?

What Is Corporate Finance
Chapter 1
© Copyright 2014 -Volyoum Enterprise - www.volyoum.com
Presentation by: Mohamed El-Masri
Twitter: @Moe_Elmasri

What is Finance?
To understand what Finance is, we need to be aware of the four types of people that exist in our
economy
The economy is composed of four types of people:
1. People with no extra money and no ideas.
2. People with extra money but no ideas (or no time to implement any ideas)
3. People with ideas but not enough money.
4. People with both ideas and extra money.
© Copyright 2014 - Volyoum Enterprise - www.volyoum.com

What is Finance? (continued)
• Type 1 tends to be caught with 9 to 5 jobs and are
living from paycheck to paycheck. However, some of
them would be interested in jumping on new
opportunities if they only had the time do so.
• Type 2 people are usually called "investors", these
investors could be wealthy individuals, but usually
they are venture capitalist, insurance companies or
larger corporations who are looking for new ideas to
finance and profit out of.
• Type 3 are the type of people who have ideas but
they do not have the means or the resources to
implement such ideas. These Type 3 people go to
Type 2 people to pitch their ideas, or the Type 2 go to
Type 3 to buy their idea. However, usually large
corporations hire investment seekers who are
Research & Development officers (R&D) to research
for new or existing opportunities. This is an
interesting way of getting funded and staying away
from bank loans. Usually private placements work
best for these types of transactions.
• There is not much to say about Type 4 people,
because they are just too interesting to talk about.

People with ideas but
not enough money
(Companies)
People with money but
no ideas/time
(Investors)
Projects
Coupon
payments,
Dividends & Stock
repurchases
The primary cash flows of finance.

The complete cash flows of Finance.
not enough money
(Companies)
no ideas/time
(Investors)
Projects
Coupon
payments,
Dividends & Stock
repurchases
Retained
earnings
Taxes

The Subfields of Finance

The study of investments
not enough money
(Companies)
no ideas/time
(Investors)
Projects
Investments
Investors have to decide which
company or companies to invest
in, what form that investment
will take and in what manner
they wish to be repaid. Looking
at these decisions from this
perspective is called the study of
investments.

Corporate Finance
(Financial Management)
not enough money
(Companies)
no ideas/time
(Investors)
Projects
Corporate
Finance
Or
Financial
Management
Companies face decisions
concerning how to raise capital,
what projects to invest in, and
how to go about paying
investors back. Looking at these
decisions from their perspective
is called Corporate Finance or
“Financial Management”.
Companies hire corporate
finance officers or Investment
Banking firm to consult them in
these decisions.

Financial Institutions and market
not enough money
(Companies)
no ideas/time
(Investors)
Projects
Financial
Institutions and
Markets.
This is another perspective,
where as we stated earlier, the
companies outsource this role
to Financial Institutions
(Investment Banking firms)
which exist for the sole purpose
of facilitating this flow of funds
between investors and the
companies.

International Finance
The final subtopic of finance is
one that considers the entire
system of cash flows, but in a
setting where the investors,
companies, and/or projects
involved are in different
countries.
Companies
£
Investors
$
Projects
¥

The Parts of Corporate Finance

Major decisions of Corporate Finance.
Companies Investors
Projects
Coupon
payments,
Dividends & Stock
repurchases
Retained
earnings
Taxes
How are we
going to raise
the money?
What are we
going to do with
the money when
we’ve got it?
How do we go
about paying
it back?
Corporate Finance

Formal names of corporate finance decisions.
Companies Investors
Projects
Coupon
payments,
Dividends & Stock
repurchases
Retained
earnings
Taxes
How are we
going to raise
the money?
What are we
going to do with
the money when
we’ve got it?
How do we go
about paying
it back?
Corporate Finance

So,Why IsThis So Complicated
The story underlying the system
of cash flows is a little more
complicated than we’ve made it
sound so far. In particular
investors know exactly how
much they’re going to pay for a
stock or a bond in a company,
but they don’t know how much
they’re going to get back or
when they will receive it.
Companies Investors
Projects
Retained
earnings
Taxes
Uncertain
$
Tomorrow

Why is Corporate Finance important?
• In the financial markets where financial assets trade, “what you get is (on average,
and taking compensation for risk into account) exactly equal to what you paid for
it”.
• The reason Corporate Finance important is because the area of corporate finance
deals with nonfinancial assets, assets that trade in physical markets and that have
properties of uniqueness that result in potential monopoly power.The goal in
corporate finance is not to break even, but to ensure that “what you get is (on
average, and taking compensation for risk into account) equal to MOETHAN what
you paid for it.”

Reference:
Adair,Troy A. (2011). Corporate Finance Demystified. 2nd edition. McGraw-Hill
Companies, Inc.

A motivated and determined individual who has acquired the discipline and desire to inspire others to lead &
succeed. He has studied Political Science & Economics at Concordia University in Montreal, Canada. While
living in Canada he also earned his qualification as a Certified Investment Consultant from the Canadian
Securities Institute (Moody’s Analytics Training & Certification) which gave him a professional ability to deal in
the Canadian securities market.
After moving to Riyadh, Saudi Arabia he also earned his qualification with the Capital Market Authority in Saudi
Arabia by obtaining the CME-1 certification from The Institute of Banking in order to conduct Investment
Banking & Securities Business in the Kingdom of Saudi Arabia. With his comprehensive understanding in
Investment Funds, Portfolio management and corporate finance he started working at The Investor For Securities
in early 2014, a fully authorized Investment Banking firm operating in the Kingdom.
Mohamed is currently enrolled at the Southern New Hampshire University, earning his Bachelors of Science
Degree in Social Entrepreneurship online. He is also the Founder & CEO of Volyoum Enterprise, an online
website specializing in coaching & consulting as well as Research & Analysis to strengthen and enhance the
competence and standards of young Entrepreneurs who are committed to serving the commonwealth and
encouraging social and economic awareness.
Mohamed EL-Masri
- Founder & CEO of Volyoum Enterprise
& Corporate Finance Officer at The Investor for Securities
“TheVolyoum experience
is meant to inspire success
and a sophisticated
entrepreneurial vocation”

• Visit our Members’ Area for a wide range of Coaching & ConsultingTools &
Programs. www.volyoum.com/Members

What is Corporate Finance?

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