Key Concepts

I. Introduction to Corporate Finance & Financial Management

• Corporate finance involves managing the financial activities of a business, focusing on investment, financing, and dividends.
• Goal: Maximize shareholder value by making sound financial decisions.

II. Review of Financial Statements

• Balance Sheet: A snapshot of a company’s financial position at a specific date.
• Assets (what the company owns)
• Liabilities (what the company owes)
• Equity (what belongs to the shareholders)
• Income Statement: Shows the company’s revenue, expenses, and profit over a period of time.
• Cash Flow Statement: Tracks cash inflows and outflows, focusing on operating, investing,
• and financing activities.

III. Types of Financial Markets

1. Organized Markets: Where equities (stocks) and bonds are exchanged.
2. Over-the-Counter (OTC) Markets: Includes more complex financial instruments like swaps and derivatives (e.g., CDOs, CDS).
3. Hybrid Instruments: Convertible bonds (both equity and debt characteristics).

IV. Financial Decision Areas

• Investment Decision: Focuses on where and how to allocate funds for future growth.
• Financing Decision: Deciding the best mix of debt and equity financing.
• Dividend Policy: Determining whether to distribute profits as dividends or reinvest them.

Balance Sheet Essentials

1. Long-Term Assets

• Tangible Assets: Real estate, equipment, machinery.
• Intangible Assets: Patents, licenses, software, goodwill.
• Financial Assets: Investments in subsidiaries, long-term lending.

2. Short-Term Assets

• Inventories: Goods available for sale.
• Receivables: Money owed by customers.
• Cash and Cash Equivalents: Liquid assets available for immediate use.

3. Liabilities

• Current Liabilities: Short-term debts like payables and overdrafts.
• Long-Term Liabilities: Bonds, loans, and other long-term financial obligations.