Financial Management

Dr. Sowmya Subramaniam

sowmya@iiml.ac.in
Room No :204

January 9, 2019

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Corporate Finance

Corporate Finance
Every decision that business makes has financial implications and any
decisions which affects the finance of the business is a Corporate Finance
Decisions

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Traditional Accounting Balance Sheet

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Financial View of the firm

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Corporate Finance Principles

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Assets

Assets
Real Assets Corporation needs endless variety of assets to carry on
the business
Financial Assets The corporation pays for the real assets by the
selling the claims on them and the cash flow which they will generate.

Investment Decision = Purchase of real assets

Financing Decision = Sale of financial assets

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Examples of Recent Investment and Financing Decisions

Company Recent Investment Decisions Recent Finance Decis

Ford Electric Vehicles Raises 1.2 million US
Indigo Placed an order for Airbus Reinvest 1.3 million of pr
Walmart Invest USD 2.7 billion to open store Repays 1.5 billion of de

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Five Themes of Corporate finance

Themes
Corporate Finance is all about maximizing the value
The opportunity cost of capital sets the standard for investment
decisions
A safe dollar is worth more than a risky dollar
Smart investment decisions create more value than smart financing
decisions
Good Governance matter

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What is corporation

A corporation is a legal entity that is a legal person owned by its

shareholders
When Corporation is first established it is closely held by small group
of investors
Eventually when firm grows and new shares are issued to raise the
additional capital , it shares are traded in public markets.
A large corproation may have hundreds of shareholders, who own the
business but cannot possibly manage or control directly

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Role of Financial Manager

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What goes Wrong?

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Stockholder Interest VS Manager interest

In theory stockholder has a control over managers

Annual meeting
Board of Directors

Annual Meeting
Most small stock holders do not join
Annual meetings are also tightly scripted and controlled events and it
is difficult for the outsiders to bring up the issues that are not the
managerial liking.

Board of Directors
Most cases CEO picks the directors
Some directors dont have big stake
CEO Authority figure

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Disney Director

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Calpher Test of Board Independence

Are Majority of directors are outsiders?

Is the chairman of the board is the independent of the company?
Are the compensation and Audit committees composed entirely of
outsiders?

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