Introduction to corporate finance- BBS 4th year

1. Introduction to Corporate
Finance
Chapter 1

2. Topics Covered
1. Concept of Corporate Finance
2. Financial Manager and his Responsibilities
3. Managerial action to Maximize shareholders
wealth
4. Corporate finance & other Functional Area
5. Agency Relationship
6. Business Ethics & Corporate Social
Responsibility
7. Concept of corporate Governance
8. Agency Theory and Corporate Governance

3. 1.Corporate Finance
 Need to understand corporate & finance Separately:
 Corporate:
 It is large company or group which is authorized to act as a
single person.
 It is related to a huge business organization.
 Finance:
It is management of large amount of money, specially by large
business organizations and companies.
It is the procurement of funds and effective utilization of it. It also
deals with the profit that adequately compensate for the cost and
risk associate with it.

4. Corporate Finance
 Corporate Finance
 Traditionally: Corporate finance is defined as the
procurement of required funds to set up a
corporation & expansion of its business activities.
 In Modern concept it deals with
 Financing Decision: selection of source of fund and
amount of fund to be raised.
 Investment Decision: Its related to the investment of
funds to profitable area and fixed assets to run the
company.

5.  Working Capital Decision: It is management of current
assets(CA)to meet its short term obligation(CL- A/P,
Creditors, ) .
CA - C/L Stock, A/R, Marketable Securities, Cash,)
CL – A/P, Short Term Loan, Creditors etc.
WC = CA – CL
 Dividend Decision: Decision of distribution of earning
of the company either
 distribute all earning or,
 Retain all earning or,
 Distribute certain percent and retain balance in the
firm.

6. In conclusion
Corporate finance Is:
the area of the finance dealing with source of
finds,
proper utilization of the acquired fund in
profitable area,
 liquidity management and
 decision of dividend which maximize the
shareholders value.

7. Financial Manager’s Responsibilities
 Analysis of the financial aspect of all decision:
 Marketing Decision - 4Ps
 Production Decision
 Research and Development of New Product
 Analysis of Investment Decision
 Investment in profitable sector
 Investment in Fixed Assets
 Analysis of Financing Decision
 Select appropriate source of fund
 Determine appropriate Mix of Fund
Cont…..

8. Financial Manager’s Responsibilities
 Analysis of Dividend Policy Decision
 Distribute all Profit or
 Retain all Profit or
 Distribute certain percent and retain balance
 Analysis of Financial Condition of the Firm
 Regularly investigate Balance sheet
 Work out financial ratios and compare
 Examine the income statement
 Analysis of Cash flow statement – Cash from Operating, investing
and financing activities. Analyze Surplus or deficit cash.
Cont…..

9. Financial Manager’s Responsibilities
 Analysis of Financial Markets
 Analysis of Capital Market to raise fund
 Analysis of Securities in the market
 Analysis of stock price in the market
 Analysis of Risk
 Analysis of all types of Risk
 Natural calamities, Foreign exchange risk, interest rate risk,
 Securities Market price Risk
 Commodities price Risk
 Financial manager ‘s responsibility is to manage possible risk in the cost
efficient manner.

10. Thank You !!!