This document provides an overview of corporate financing, including patterns of corporate financing, common stock, debts, financial markets and institutions, and their roles. It discusses how corporations obtain internal funds from depreciation and retained earnings and external funds from stocks and debts. Common stockholders own the corporation but managers also play a role in how much firms borrow. Financial markets allow corporations to raise funds from investors worldwide, while financial institutions like banks, mutual funds, and insurance companies are major sources of financing for corporations.

1. Group Members:
Amna Javed Roll#08
Freeha Rana Roll#25

2. An Overview of Corporate
Financing
Topics covered:
●Patterns of Corporate Financing
●Common Stock
●Debts
●Financial Markets and Institutions
●The Role of Financial Markets and Institutions

3. Corporate Finance deals with the capital
structure of a corporation including its
funding and the actions management take
to increase the value of the company.
The ultimate purpose of corporate finance
is to maximize the value.

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Corporations invest in long-term assets and
in net working capital.
The cash for these investments comes
from two sources:
◦Internally generated i.e. from depreciation
and retained earnings
◦Externally generated i.e. from stocks and
debts.

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Do firms rely too much on internal funds?
◦ Role of managers
How much do firms Borrow?
◦ Debt Ratio
◦ Recording at book value and market value

6. Common stockholders are:
◦ Individual investors
◦ Financial Institutions
Stockholders own the corporation?
◦ Cash flow rights
◦ Control rights

7. Voting Procedures:
Section 152(2) of Companies Act, 2013
◦ Article of association provide for election of
directors by simple majority(also called
Majority voting system)
Section 163 of Companies Act, 2013
◦ Article of association provide for system of
proportional representation( also called
Cumulative voting system)
Proxy contests

8. Dual –Class shares and Private Benefits:
Companies Amendment Act,2000 allowed
companies to issue shares with differential
rights to vote, dividends or otherwise.
Private benefits could be:
◦ Seat on Board of Directors
◦ Access to perquisites provided by
company
◦ Extra bargaining power in acquisition

9. Tunneling
◦ Majority shareholders tunnels into the
firms and acquires control of assets for
himself.
Reverse stock splits
◦ The company7 making reverse stock splits
combines its shares into smaller, more
convenient shares.
Russian company proposed that existing
shareholder will receive 1 share in place of
every 136,000 shares they currently held.

10. Equity in Disguise
Few securities are issued by partnerships or trusts
 Partnerships:
◦ Master limited partnership
◦ In Plains All America Pipeline LP is a master limited
partnership.
 Trusts and REITs:
◦ Royalty trusts is a type of corporation created to act as
owner of Mineral rights to well, mines and similar
properties.
◦ Passive owner are any shareholder in business that is
not involved in day-to-day decisions making of
company's operations
◦ Real estate investment trusts are those that owns and
in most cases operates income producing real estate

11. Preferred Stock
◦ Offers a series of fixed payments to the
investor.
◦ Commutative preferred stock are in which
firm must pay all past preferred dividends
before common stockholders get a cent.

12. Limited liability
Debts have not residual cash flow rights or
control rights.
Also, interest is paid from before-tax
income whereas dividends on common
and preferred stock are paid from after-tax
income.

13. Financial Managers response to questions:
◦ Short-term or Long-term ?
◦ Fixed or Floating rate?
◦ Rupees or other currency?
◦ Promise to lender?
◦Straight or Convertible bonds?
Debt by other name:
◦ Accounts payable
◦ Lease

14. Corporation
Investment in
Real assets
Investors
Worldwide
Financial Markets
Stock markets
Fixed-income markets
Money markets
Markets for
•Commodities
•Foreign Exchange
•Derivatives
Financial Institutions
•Banks
•Insurance Companies
Financial Intermediaries
•Mutual Funds
•Pension Funds
Reinvestment
Flow of savings to investment for a large, public corporation.

15. Financial Markets:
◦ A financial market is a market where
financial assets are issued and traded.
Primary issues
Secondary transactions
Over the counter Markets

16. Financial Intermediaries:
◦ A financial intermediary is an organization
that raise money from investors and
provides financing for individuals,
companies, and other organizations.
◦ Important source for corporation.

17. Why financial intermediary different from a
manufacturing corporation?
1. It may raise money in different ways.
eg. Taking deposits or selling policies
1. It invests that money in financial assests.
eg. In stocks, bonds, loans.

18. 1. Mutual Funds
2. Hedge Funds
3. Pension Funds

19. Mutual Funds
• ◦ Mutual funds raise money by selling
shares to investors.
• ◦ Mutual funds offer investors low-cost
diversification and professional
management.
• Mutual funds can be open-ended funds or
close-ended funds.

20. Hedge Funds
◦ An offshore investment fund, typically
formed as a private limited partnership,
that engages in speculation using credit or
borrowed capital.
They differ from mutual funds in two ways:
◦ They follow complex investment strategies
◦ Hedge funds are generally established as
limited partnerships.

21. Pension Funds:
◦ A fund from which pensions are paid,
accumulated from contributions from
employers, employees or both.
◦ They are designed for long term
investment.
◦ They have important tax advantage.

22. Financial Institutions
◦ Banks and insurance companies are
financial institutions.
Commercial Banks
◦ Main sources of loans for corporation.
Company Bank Investors
Issues
debts
Accepts
Deposit

23. Investment Banks
◦ Investment banks do not take deposits and
they not usually makes loans to
companies. Instead they advice and assist
companies in raising funds.
◦ The largest investment banks are
powerhouses for example Morgan Stanley,
Lazard etc

24. Insurance Companies:
◦ They are massive investors in corporate
stocks and bonds, and they often make
long-term loans directly to corporations.
Company
Insurance
Company
Investors
Issues
debts
Accepts
Deposit

25. The Payment Mechanism
Borrowing and Lending
Pooling Risk
Information provided by Financial Markets.

26. Thank You for your patience…
Any Questions..?