CORPORATE

FINANCE - FIRST
COURSE

By Jawwad Ahmed Farid

C O R P O R A T E F I N A N C E : F I R S T C O U R S E

CONTENTS
SESSION ZERO LEARNING OBJECTIVES ...................................................................................................... 5
SESSION I FINANCIAL CONCEPTS ............................................................................................................. 9
1. Definitions .......................................................................................................................................... 9
i. Operating Cycle .............................................................................................................................. 9
ii. Books ............................................................................................................................................. 9
iii. Liquidity ....................................................................................................................................... 9
iv. Financial Structure ....................................................................................................................... 9
v. Maturity ........................................................................................................................................ 9
2. Forms of Ownership ........................................................................................................................... 10
i. Sole Proprietor ............................................................................................................................. 10
ii. Partnerships ................................................................................................................................ 10
iii. Corporations .............................................................................................................................. 11
iv. Limited Liability Companies (LLC's) ............................................................................................ 11
3. Financial Statements .......................................................................................................................... 12
4. The Balance Sheet .............................................................................................................................. 12
5. The Income Statement ....................................................................................................................... 13
6. Statement of Cash Flows .................................................................................................................... 13
7. The Accounting Notes ........................................................................................................................ 14
SESSION II REVIEW OF FINANCIAL STATEMENTS ......................................................................................... 15
1. Assets ................................................................................................................................................. 15
i. Current assets .............................................................................................................................. 15
ii. Property Plant & Equipment ....................................................................................................... 16
2. Depreciation .......................................................................................................................................... 17
3. Liabilities ................................................................................................................................................ 18
i. Current Liabilities ......................................................................................................................... 18
ii. Long Term Liabilities ................................................................................................................... 19
4. Net working capital ............................................................................................................................... 19
5. Equity ..................................................................................................................................................... 19
i. Shares ........................................................................................................................................... 20
ii. Authorized Shares ....................................................................................................................... 20
iii. Issued Shares ............................................................................................................................. 20
iv. Treasury Shares .......................................................................................................................... 20
v. Preferred Shares ......................................................................................................................... 20
vi. Common Stock ........................................................................................................................... 20
vii. Retained Earning ....................................................................................................................... 20
ix. Bankruptcy ................................................................................................................................. 20
6. Income Statement ................................................................................................................................. 21
SESSION 3 RISK AND RETURN ................................................................................................................. 23
1. Risk & Reward .................................................................................................................................... 23
i. Important Points to remember .................................................................................................... 24
2. Return .................................................................................................................................................... 24
i. Return on Equity .......................................................................................................................... 25
ii. Return on Invested Capital & ROE .............................................................................................. 25

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C O R P O R A T E F I N A N C E : F I R S T C O U R S E

iii. Payback period. ......................................................................................................................... 26

SESSION IV TIME VALUE OF MONEY: AN OVERVIEW ................................................................................... 27
1. Discount Rate ..................................................................................................................................... 27
i. Compounding ............................................................................................................................... 27
2. Time Value of Money ......................................................................................................................... 28
i. Examples ...................................................................................................................................... 31
3. Present Value in Action ...................................................................................................................... 34
4. Internal Rate of Return (IRR) .............................................................................................................. 35
i. Internal Rate of Return (IRR) and comments ............................................................................... 36
SESSION V OPPORTUNITY COST AND COST OF CAPITAL ................................................................................ 42
1. Opportunity Cost & Cost of Capital .................................................................................................... 42
i. Scenario 1 Understanding Opportunity Cost ............................................................................ 42
ii. Scenario 2 Understanding Cost of Capital ................................................................................ 42
2. Weighted Average Cost of Capital (WACC) ........................................................................................ 43
SESSION VI CASE STUDY: ELECTRONIC ARTS .............................................................................................. 47
1. Case Study .......................................................................................................................................... 47
2. Exhibits ............................................................................................................................................... 69
APPENDIX A ......................................................................................................................................... 71
DISCLAIMER .......................................................................................................................................... 72

Please do not photocopy or distribute without permission. All rights reserved Alchemy Software Pvt Limited.
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