Chapter 1

[Audio] Hello and welcome! Today, we will be discussing the five essential areas of financial topics that every business should be aware of. Our presentation is designed to provide valuable insights on how to make the right long-term investments, explore financing options, and manage daily financial activities. As a financial manager, you play a crucial role in financial management. You coordinate the activities of the treasurer and controller, handle cost and financial accounting, tax payments, and management information systems. We hope our presentation is informative and valuable, and we welcome any questions you may have..

[Audio] We are gathered here to discuss the financial topics that are typically covered in Corporate Finance texts. From Corporate finance to Fintech, there are five areas to explore. Each area offers a unique perspective on the world of finance and its many opportunities. So whether you're a seasoned professional or just starting out, Corporate Finance has something for you..

[Audio] We here to discuss the concept of corporate finance, which is the study of how businesses make financial decisions. Entrepreneurs have to consider three main questions when starting a business: What investments should they take on, how to finance those investments, and how to manage their everyday financial activities. These questions are interconnected and have a significant impact on the success of a business. Corporate finance involves analyzing financial data and using it to make informed decisions. Financial managers play a crucial role in corporate finance as they are responsible for helping businesses make these decisions. They use financial statements, such as income statements, balance sheets, and cash flow statements, to evaluate the financial health of a business and determine the best course of action. Investors also play a crucial role in corporate finance as they provide the capital needed to finance business investments. Businesses can choose to bring in other owners or borrow the money from external sources such as banks or investors. Corporate finance is an essential aspect of running a business, and businesses that are well-versed in corporate finance are more likely to make informed decisions and achieve success in the long run. As such, it is essential to have a good understanding of corporate finance concepts and principles to make informed decisions and achieve success in business..

[Audio] We will discuss the role of owners in large corporations and how they are represented by managers. The financial management function is typically associated with a top officer of the firm, such as a vice president of finance or a chief financial officer (C-F-O--). This function is responsible for making decisions on behalf of the owners, managing the firm’s cash and credit, financial planning, and capital expenditures. The financial manager coordinates the activities of the treasurer and the controller, who handle cost and financial accounting, tax payments, and management information systems..

[Audio] We hope this slide has given you a better understanding of the finance activity in a large firm. Thank you for your attention..

[Audio] Thank you for joining us today for our presentation on Introduction to Corporate Finance. We will discuss key concepts related to capital budgeting, determining the optimal mixture of debt and equity for the firm, managing short-term assets and liabilities, and financial management decisions. These concepts are crucial in corporate finance as they involve making long-term investment decisions, managing the capital structure of the firm, and managing short-term assets and liabilities. We hope that our presentation has provided you with a better understanding of these key concepts and their importance in corporate finance. Thank you for your attention, and we welcome any questions you may have..

[Audio] We will be discussing the different forms of business organization and their respective advantages and disadvantages for the life of the business, the ability of the business to raise cash, and taxes. We will be discussing three different forms of business organization: Sole Proprietorship, Partnership, and Corporation. A Sole Proprietorship is the simplest form of business organization and is owned and operated by one individual. The owner has complete control of the business and is personally liable for all debts and obligations. While it is easy to set up and can be very profitable, the lack of separation between the owner's personal and business assets can make it difficult to raise capital and can also expose the owner to unlimited liability. A Partnership is another form of business organization where two or more individuals share ownership of the business. The partners share in the profits and losses of the business and have joint and several liability for the debts and obligations of the business. Partnerships can be very profitable, but the lack of control and the potential for disagreements can make it difficult to manage the business. Finally, a Corporation is a legal entity that is separate from its owners and shareholders. Corporations have limited liability, meaning that the owners' personal assets are protected from the debts and obligations of the business. Corporations can also raise large amounts of capital through the sale of stock and can be very profitable. However, the cost of setting up and maintaining a corporation can be high, and the paperwork can be very complex. In conclusion, as a firm grows, the advantages of the corporate form may come to outweigh the disadvantages. The different forms of business organization each have their own advantages and disadvantages, and it is important to carefully consider the options before choosing the right one for your business. Thank you for listening..

[Audio] Welcome to Introduction to Corporate Finance. In this chapter, we will explore the characteristics of sole proprietorships, the most common form of business ownership. Sole proprietorships are owned by individuals. They are the simplest and least regulated type of business to establish. The proprietor of a sole proprietorship retains all the profits, but these profits are taxed as personal income. The proprietor bears unlimited liability for business debts, meaning they are personally responsible for any debts incurred by the business. However, there are several disadvantages to owning a sole proprietorship. The lifespan of the business is tied to the owner's life expectancy, meaning that if the owner dies, the business will cease to exist. Moreover, the amount of equity that can be raised is limited to the amount of the proprietor's personal wealth. Transferring ownership may be challenging, as there are no clear rules for how to pass on the business to a family member or other heir. Despite these challenges, sole proprietorships remain a popular choice for many entrepreneurs. They offer a simple and flexible way to start a business with minimal regulation and the potential for significant profits. However, entrepreneurs must carefully weigh the risks and benefits before opting for a sole proprietorship..

[Audio] We will now discuss the general partnership and limited partnership as two different business structures. A general partnership is when all partners share in gains or losses and have unlimited liability for all partnership debts, not just some particular share. This means that if the business incurs debt, all partners are personally responsible for paying it off. On the other hand, a limited partnership has one or more general partners who run the business and have unlimited liability, but there will be one or more limited partners who will not actively participate in the business. Limited partners' liability for business debts is limited to the amount that partner contributes to the partnership. This means that if the business incurs debt, the limited partners are not personally responsible for paying it off. The way partnership gains (and losses) are divided is described in the partnership agreement. It is important to note that beginning in 2018, up to 20% of a partner's income may be exempt depending on various rules spelled out in the Tax Cuts and Jobs Act of 2017..

[Audio] We will now discuss the formation of a corporation. Forming a corporation involves preparing articles of incorporation and a set of bylaws. These documents outline the corporation's name, purpose, and rules for its operation. The articles of incorporation must contain certain information, such as the corporation's name, intended life, and business purpose. The intended life of a corporation can be forever, which provides stability and longevity for the business. The articles of incorporation also specify the number of shares that can be issued, which determines the ownership structure of the corporation. The bylaws, on the other hand, are rules describing how the corporation regulates its existence. These rules cover aspects such as meetings, management, and decision-making. One of the main advantages of forming a corporation is the limited liability for stockholders. This means that the personal assets of stockholders are protected from the corporation's debts and obligations. Additionally, ownership can be readily transferred, which provides flexibility for the corporation's future growth and development. However, there are also significant disadvantages to forming a corporation. Double taxation is one such disadvantage, which means that corporate profits are taxed twice, first at the corporate level and then again at the personal level when they are paid out to stockholders. This can significantly impact the corporation's profits and sustainability. In conclusion, forming a corporation involves preparing articles of incorporation and bylaws, which outline the corporation's name, purpose, and rules for its operation. While there are advantages to forming a corporation, such as limited liability and ownership flexibility, there are also significant disadvantages, such as double taxation. It is important to carefully consider these factors before deciding to form a corporation..

[Audio] Good morning everyone, welcome to our slide on “Other” in Chapter 1 of our Introduction to Corporate Finance presentation. In this slide, we will discuss variations of the corporate form of organization found worldwide, including joint stock companies, public limited companies, and limited liability companies. As you know, the specific laws and regulations for the corporate form of organization vary from country to country, but the essential features of public ownership and limited liability remain consistent across all variations. One example of a variation of the corporate form of organization is the benefit corporation. A benefit corporation is a for-profit entity that has three additional legal attributes: accountability, transparency, and purpose..

[Audio] We are pleased to present to you an introduction to Corporate Finance. As we have previously discussed, for-profit businesses have specific financial goals they aim to achieve in order to be successful. These goals fall into two categories: profitability goals and risk control goals. Profitability goals aim to increase profits in different ways, such as increasing sales, market share, and cost control. These goals are important to business owners as they aim to maximize their current value per share of the existing stock. On the other hand, risk control goals aim to minimize the risk of bankruptcy and maintain stability and safety. From the stockholders’ perspective, a good financial management decision is one that maximizes the current value per share of the existing stock, which aligns with their goal of financial management. In conclusion, financial management in for-profit businesses is crucial in achieving their financial goals, whether it is profitability or risk control. It is essential for businesses to have a clear understanding of their goals and make decisions that align with them to be successful in the long run..

[Audio] Hello everyone. Today, we will discuss the relationship between stockholders and management, commonly referred to as the agency relationship. This relationship arises when someone hires another to represent their interests. However, there is a possibility of conflict of interest between the stockholders and management of a firm. This is known as the agency problem. It is important to understand that agency costs refer to the costs of the conflict of interest between stockholders and management. These costs can come in two forms: direct agency costs and indirect agency costs. Direct agency costs refer to corporate expenditures that benefit management but cost the stockholder. For example, a luxurious and unneeded corporate jet may be purchased by management, despite the negative impact it has on the stockholder's bottom line. Indirect agency costs refer to expenses that arise from the need to monitor management actions. These costs include the hiring of external auditors and the implementation of internal controls to ensure that management is acting in the best interest of the stockholder. To address the agency problem and control the corporation, it is essential to have effective corporate governance in place. This includes having a strong board of directors that can monitor management's actions and ensure that the interests of the stockholder are being protected. In conclusion, the relationship between stockholders and management is an essential aspect of corporate finance. It is important to understand the agency problem and the costs associated with it, as well as the measures that can be taken to address it and control the corporation. Thank you for your attention..

[Audio] We will address the question of whether managers act in the best interests of stockholders. The response to this inquiry is contingent on two elements. The first factor relates to how closely management's objectives align with those of stockholders. This issue is connected to the way in which managers are compensated. The second element depends on whether managers can be replaced if they do not prioritize stockholder goals. When managers are well-compensated, they will have a significant financial incentive to increase share value for two reasons. Firstly, managerial compensation is frequently tied to overall financial performance, as well as to share value specifically. Secondly, successful managers in pursuing stockholder goals will have greater demand in the job market and will command higher salaries. Moreover, stockholders have ultimate control over the company, as they elect the board of directors, who in turn hire and dismiss managers. If existing management does not align with stockholder goals or is not properly compensated, there may be a conflict of interest, and it may be challenging for managers to act in the best interests of stockholders. To answer this question, we must consider both of these factors. If management objectives are closely aligned with those of stockholders and managers are properly compensated, it is likely that they will act in the best interests of stockholders. However, if management objectives are not aligned with those of stockholders or managers are not properly compensated, there may be a conflict of interest, and it may be challenging for managers to act in the best interests of stockholders. In conclusion, whether managers act in the stockholders' interests depends on two factors: how closely are management goals aligned with stockholder goals and whether can managers be replaced if they do not pursue stockholder goals..

[Audio] As a corporate finance professional, it is important to understand the interests of various stakeholders, including management, stockholders, employees, customers, suppliers, and the government, and how their motivations and interests can impact the financial decisions of the firm. Employees may seek job security and a decent wage, customers may be concerned about the quality of products or services, while suppliers may be concerned about payment. The government may have a financial interest in the firm through taxes or regulations that affect the firm's operations. These stakeholders may attempt to exert control over the firm, potentially at the expense of the owners. Corporate finance professionals play a crucial role in helping the firm balance its financial interests with its social and environmental responsibilities..

[Audio] Hello everyone. Today we'll be discussing Introduction to Corporate Finance. We'll be discussing financial markets, which are a way of bringing buyers and sellers together to buy and sell debt and equity securities. The most important differences between financial markets concern the types of securities that are traded, how trading is conducted, and who the buyers and sellers are. In a primary market transaction, the corporation is the seller, and the transaction raises money for the corporation. Public offerings involve selling securities to the general public, while private placements are negotiated sales involving a specific buyer. On the other hand, a secondary market transaction involves one owner or creditor selling to another, serving as a means for transferring ownership of corporate securities. Financial markets play a crucial role in the economy, as they provide a platform for companies to raise capital and investors to invest their money. Understanding the different types of financial markets and how they work is essential for anyone interested in corporate finance. Thank you for your attention..

[Audio] Hello and welcome to discussing the interplay between the corporation and the financial markets, and how cash flows between them. As you can see from the image, the firm sells shares of stock and borrows money from the financial markets to raise cash. The arrows trace the passage of cash from the financial markets to the firm and from the firm back to the financial markets. Let's take a closer look at the various steps in this process. When the firm sells shares of stock, cash flows to the firm from the financial markets (A). This cash is then invested in current and fixed assets (B), which generate cash (C). Some of this cash goes to pay corporate taxes (D). After taxes are paid, some of the cash flow is reinvested in the firm (E). The rest goes back to the financial markets as cash paid to creditors and shareholders (F). It's important to note that the cash flows between the firm and the financial markets are not static. They are constantly changing based on the firm's needs and the availability of funds in the financial markets. In conclusion, the interplay between the corporation and the financial markets is crucial to the success of any business. Understanding how cash flows between them can help businesses make informed decisions and navigate the ever-changing financial landscape. Thank you for your attention, and we hope you found this discussion informative..

[Audio] Today, we will be discussing the financial markets and corporations. It is important to note that there are many large and significant financial markets outside of the United States, and U S corporations are increasingly looking to these markets to raise capital. Two well-known examples of financial markets are the Tokyo Stock Exchange and the London Stock Exchange. The New York Stock Exchange has the most stringent requirements of the exchanges in the United States. In order to be listed on the N-Y-S-E-, a company must have a market value for its publicly held shares of at least 100 million dollars. There are two types of secondary markets: Dealer markets in stock and long-term debt are called over-the-counter (O-T-C--) markets, meaning the dealers are connected electronically instead of transacting in a central location. Auction markets differ from dealer markets in that an auction market or exchange has a physical location and its primary purpose is to match those who wish to sell with those who wish to buy, with dealers playing a limited role. The largest organized auction market is the New York Stock Exchange, while a large O-T-C market exists for stocks. Stocks that trade on an organized exchange are said to be listed on that exchange, with exchanges having different criteria, such as asset size and number of shareholders. Thank you for listening..