Corporate finance deals with how corporations raise and manage financial resources. It involves making investment, financing, and dividend decisions to maximize shareholder wealth while balancing risks and rewards. The discipline draws on economics, accounting, and mathematics to analyze financial statements and allocate capital. It also addresses agency problems that arise from conflicts of interest between shareholders and managers or creditors. Corporate finance has evolved with industrialization and technological changes, developing quantitative tools and theories to improve capital market efficiency and firm value.

2. 1. WHAT IS CORPORATE FINANCE?
2. FINANCE IN THE ORGANIZATIONAL
STRUCTURE OF A FIRM
2.1 ORGANIZATION OF FINANCE FUNCTION
2.2 FINANCIAL MANAGER
3. FINANCE FUNCTIONS
3.1 EXECUTIVE FINANCE FUNCTION
3.2 ROUTINE FINANCE FUNCTION
4. GOALS OF CORPORATE FINANCE
4.1 PROFIT MAXIMIZATION
4.2 LIMITATIONS OF PROFIT MAXIMIZATION
4.3 WEALTH MAXIMIZATION
4.4 LIMITATIONS OF WEALTH MAXIMIZATION
5. CORPORATE FINANCE AND RELATED DISCIPLINES
5.1 RELATIONSHIP WITH ECONOMICS
5.2 RELATIONSHIP WITH ACCOUNTING

3. 5.3 RELATIONSHIP WITH MATHEMATICS
6. THE AGENCY PROBLEM
6.1 AGENCY
6.2 AGENCY PROBLEMS BETWEEN SHAREHOLDERS AND
MANAGERS
6.3 RESOLVING CONFLICTS BETWEEN
SHAREHOLDERS AND MANAGERS
6.4 AGENCY PROBLEMS BETWEEN SHAREHOLDERS AND
CREDITORS
6.5 RESOLVING CONFLICTS BETWEEN
SHAREHOLDERS AND CREDITORS
7. DEVELOPMENT OF CORPORATE FINANCE
8. MEET THE TEAM
9. REFERENCES

4. “Corporate Finance is the area
of finance dealing with the
sources of funding and the capital
structure of corporations and the
actions that managers take to
increase the value of the firm to
the shareholders, as well as the
tools and analysis used to allocate
financial resources.”
- Wikipedia

5. Corporate Finance is the management
of financial resources of a business
entity.
Corporate Finance is not only
concerned with financing decision, but
also with investment and current
management decisions.

6. Corporate Finance is
about..

7. • The management of finance
differs according to the
organization
- Small family run firms
- Large companies

8. • Authority – Responsibility
relationship among people
involved in finance functions in an
organization
• Division of work
• Helps avoid confusions on roles
and responsibilities of employees,
duplication and overlapping of
activities

9. Stockholders
Board
Of
Directors
Chief Executive Officer
CEO
OWNERS
Chief Marketing Officer
CMO
Chief Production
Officer
CPO
Chief Financial Officer
CFO
Treasurer
Controller
MANAGERS
Credit Manager
Inventory Manager
Director of Capital Budgeting
Cash and Liquidity Manager
Cost Accounting Manager
Financial Accounting Manager
Tax Department Manager

10. Also referred to as deputy director or
vice – president for finance, treasurer,
controller and other managers working
under them

11. Planning and
Budgeting
Resource Allocation
Operating, Monitoring
and Safeguarding
Evaluating and
Reporting

12. Also known as collection of funds
approach, it confines the finance
functions to the procurement funds
only and ignores the use of funds.
Comprehensive and universally
accepted approach with the
procurement of funds and it’s effective
utilization.

13. Investment
Decision
Financing
Decision
Those which require
managerial skills in
their planning,
execution and
control

14. Working Capital
Decision
Dividend
Decision
Those which require
managerial skills in
their planning,
execution and
control

15. Also known as incidental
finance functions these are
performed for the effective
execution of executive
finance functions which
doesn’t require specialized
skills. Clerical in nature, this
involves a lot of paper
work, cover procedures and
systems.

16. Goal is an observable and
measurable end result having
one or more objectives to be
achieved within a more or less
fixed timeframe.

17. • Amount and share of national
income which is paid to the
owners of business
• A situation where output exceeds
input, that is the value created by
the use of resources is more than
the total of the input resources
• Investment, financing and
dividend policy decisions of a firm
should be oriented to the
maximization of profits
• A yardstick by which economic
performance can be judged

18. • Ambiguity- Has no precise
connotation and is a vague and
ambiguous concept
• Timing of Benefit- Ignores the
differences in the time pattern of the
benefits received from investment
proposals or courses of action
• Quality of Benefit- ignores the quality
aspect of benefits associated with a
financial course of action

19. • Also known as value
maximization or net present
worth maximization, it is almost
universally an accepted goal of a
firm
• The managers should take
decisions that maximize the
shareholders' wealth or
generates a net present value

20. •Net present value is the difference
between present value of the
benefits of a project and
present value of its costs
•Equivalent to stock
price maximization
• Based on the concept of cash flows
generated by the decision rather
than accounting profit
• Considers time value of money

21. • It may not be suitable to
present day business activities
• It is the indirect name of the
profit maximization
• Creates ownership-
management controversy
• Management alone enjoy
certain benefits
• Can be activated only with the
help of the profitable position of
the business concern

22. CORPORATE FINANCE AND
RELATED DISCIPLINE

23. • Studies individual firms operating within the
economy
• Solves problems related to individual firms
• Finance related principles: demand & supply
analysis, profit maximization strategies,
pricing theories, marginal analysis, etc
• Business operations within the economy
• To understand the economic frame work
• Aware of the consequences of different level
of economic activities
• Recognizes and understands the effect of
monitory policy on cost and availability of
funds

24. • Systematic and comprehensive recording
of financial transactions pertaining to a
business
• Financial manager recasts the statement
prepared by accountant and generates
additional data and makes decision on
analysis
• Finance draws heavily on
mathematics and quantitative
techniques.
• Useful in complex problem solving

25. AGENCY
/ˈeɪdʒ(ə)nsi/
“A relation, created either by express
or implied contract or by law, whereby
one party (called the principal
or constituent) delegates
the transaction of some lawful business
or the authority to do certain acts for
him or in relation to his rights or
property, with more or less discretionary
power, to another person (called the
agent, attorney, proxy, or delegate) who
undertakes to manage the affair and
render him an account thereof.”
- Black’s Law Dictionary

26. AGENCY PROBLEM
• A problem in determining managerial
accountability that arises when delegating
authority to managers
• Conflict of interest between the principal
and the agent, or the shareholder and the
manager
• Shareholders are at information
disadvantage as compared to the managers
• It takes considerable time to see the
effectiveness of decisions managers can
make
• Very difficult to evaluate how well the
agent has performed because the agent
possesses an information advantage over
the principal

27. • In theory, managers should at in
the best interest of the
shareholders
• In practice, managers may
maximize their own wealth (in the
form o f high salaries and perks)
at the cost of shareholders
• Buy other companies to expand
power, venturing onto fraud,
manipulate financial figures to
optimize bonuses and stock price
related options, etc

28. RESOLVING CONFLICTS
Managerial
Compensation
Direct Intervention
By Shareholders
The Threat of Firing
The Threat of
Hostile Takeovers

29. • Shareholders through managers
make decisions for shareholders
value maximization by ignoring
the interest of creditors
• Manager may decide to invest in
a risky project. If the project
succeeds, all the benefits goes to
the shareholders and the creditors
will receive only the already fixed
low rate of return. However, if the
project fails creditors may have to
share the losses as well

30. RESOLVING CONFLICTS
Compensating
Creditors for
Increased Risk
Protective Terms
and Conditions for
Creditors

31. DEVELOPMENT OF
CORPORATE FINANCE

32. 1800
• Corporate
Finance as a
part of
Economics
1900
• Rapid
industrialization-
new business,
expansions,
mergers- in the USA
and Europe
• Shortage of capital
due to the absence
of capital market
• Distrust in
financial statements
resulting in lack of
investors
• Birth of finance as
a separate discipline
1930
THE
GREAT
DEPRESSION
• Failure in real market
transmits to capital market
• Attention shifts from legal
control to bankruptcy,
reorganization and
regulation of capital market
1940
• Due to market downfall,
focus is shifted from
expansion and
modernization to survival of
firms
• Amendments in company’s
regulations and setting of
accounting standards
• Advanced through
development of
mathematical tools to cash,
accounts receivables and
fixed assets management
Investor’s increased
confidence in
financial statements
1950
• Quantitative
method of
analyzing
financial
problems
• Development of
various financial
theories
• Efficiency and
regulation of
financial markets
21st
Century
THE
DIGITAL
ERA
• Technological
advancement
• Focus on value
maximization
• Globalization of
business
• Increased use of
information and
communication
technology
• Multinational
companies