Corporate Finance

Assistant Professor, Divya Aggarwal

 General Information

• Office : A1-2

• E-mail : [email protected]
(I generally respond within 48 hours for all mails, unless I am unwell)

• Drop me an email before coming to office if you want to avoid your

unnecessary walk to A block

• Anyone not able to get access to the e-book or case set?

 Welcome to Corporate Finance Course
Session 19: 20
ESG??
Reflections and Project
Session 16: 18
AI??
Payout Decisions &
Working Capital
Session 11: 15
Market Efficiency,
Financing decisions,
Capital Structure Session 7: 10
Cost of Capital,
Valuation of Stocks,
Session 1: 6 Bonds
Foundations, Time Value of
Money, Capital Budgeting
 Evaluation Criteria

• End Term
Evaluation Weightage (%) Duration (in minutes) Open/close Book
End-Term 35% 120 (TBD) Closed Book

• Other
Evaluation Weightage (%) Duration (in minutes) Unit
Mid-Term 25% 90 (TBD) Closed Book
Quizzes 10% In between sessions Closed Book
Group Project* 15% Ongoing
Group Assignment* 15% Ongoing
*Details to be shared in first two sessions
 Class Rules

• Attendance queries to GP Office -----→

more than 4 absence leads to grade
drop

• Natural calamities caused delay in

class -------→ Maximum 15 minutes
(subject to faculty discretion), else
marked absent

• Black stars -------→ more than 4 black

stars for disciplinary action in class
leads to negative 5 marks
 What is Corporate Finance

Interaction between firms

and markets?

M&A, raising funding?

Capital budgeting?

Cost of Capital?

• Your definition depends upon your role

 What is Corporate Finance

Investment Decisions Financing Decisions

Operating Decisions Dividend Decisions

Depending upon your role, there is specific aspect of CF applicable to all

Different for an IB, CFO, Consultant, Product Manager etc

Everything which touches money becomes CF

 What about other disciplines?

Human
Marketing?
Resources?
Information
Systems?

Operations ? Strategy ?

• Hence, it is a CORE course, applicable to any discipline

 So why should you know Corporate Finance?

Company’s financial Corporate strategy will be

statements affect stock prices incomplete without numbers

Investment banker needs to Marketing job requires to

know it to value firms understand profitability analysis

Own start up, need to Can analyze operations,

manage finance function strategy and HR costs better

As a CEO, I should know what the items

in the statements mean
 Help Saanvi ?

She is looking to raise funds for her food venture – Mexican Rodeo.
Potential investors might ask her below questions:

How much debt should she borrow? How much equity?

 Help Saanvi ?

She is looking to raise funds for her food venture – Mexican Rodeo.
Potential investors might ask her below questions:

How profitable is the venture and what is the historical

revenue growth?

What if the venture goes for a leasing model?

Is the venture a QSR, fine dining or a kiosk?

How should she deal with it ?

 Running Cycle for a firm

1. Firm raises capital

Financing

4a. Rewards capital 2. Invests capital in long

providers term resources
4b. Reinvests part of its
profit to generate growth Investing

Operations

3. Makes profit by investing efficiently Accounting system captures the

full business cycle in 3 statements
 Lets go back to Accounting
BALANCE SHEET
ASSETS LIABILITIES
Long lived Real Assets Fixed Assets Current Liabilities Short-term liabilities
Short-lived Assets Current Debt Debt obligations of firm
Assets
Investments in securities & assets Financial Other Liabilities Other long-term obligations
of other firms Investments
Assests which are not physical Intangibles Equity Owner financing in the firm

How is it recorded when business is started?

How is it recorded when a business acquires another business?
What are intangible assets? How does GOODWILL come on the Balance Sheet?
 Lets revise the accounting fundamentals

Balance Sheet

Income Statement

Cash Flow Statement

Financial Statement Analysis

Ratio Analysis

DuPont Analysis

What are financial models? How do you use your skills for financial modelling?
But always remember
 What is Profit?

• Accounting performance is not as same as economic performance

 What to expect from this course

• It will be an applied class pedagogy : Will aim to test all theories on a

real company
• Understanding the landscape of finance -----------→ I will try to hard
sell all finance electives to you :P

• Use all gained knowledge in decision making

• Understand fundamental finance issues and challenges
• How you as an investor or an executive can become a value maximizing
manager
 So do all organizations need corporate finance?

What type of
organizations?

• Business Model

• Legal formation What type of

information is needed ?
 How to choose a form of business organization

• Consider a number of factors such as – owner’s need for control, growth plans,
capital requirements, government regulation and taxation

Classification Proprietorship Partnership Company LLP

Getting Started Instant start Near instant start Takes time Near instant start
Decision Making Highly flexible Reasonably flexible Constrained Reasonably flexible
Raising capital Difficult Difficult Easy Difficult
Legal compliance Simple Simple Burdensome Simple
Owner’s liability Unlimited Unlimited Limited Limited
Suitability Small business Mid-sized business Large business Professional services
Taxation Owner Partner’s income Corporate Partner’s income
income
 Formation of companies

• Legal process:
• Promoters (Founders) register it with RoC in their respective state of company’s
registered office
• Submit MoA – includes name, objects, limited liability statement, share capital amount,
shares etc
• Submit AoA – covers internal matters such as meetings, voting's, issue of new shares
• Certificate of incorporation – issued after the legal formalities for company formation
are complied with

• Main advantages of company form of business over others is:

• Free transferability of ownership, perpetual existence, professional management and
ease of raising capital
 Corporate Organization Structure

Shareholders External Auditor

Internal Auditor Board of Directors Audit Committee

President/CEO

Company Vice President Vice President (Finance Vice President Vice President
Secretary Marketing & Accounting) Operations HR

Controller: Treasurer:
Preparing financial Planning and
statements, controlling cash
budgets needs
What is value? What is mark to market?
 Price Vs Value

Price : INR 40,000 INR: 240 INR 300

Value ?? Value ?? Value ??

What comes to your mind when you think of Value?

What is the price of your MBA degree and what about its Value?
 Lets go a step back to Economics

What is preference theory?

The theory states that given a consumer's budget, they will select the same bundle of goods (the
"preferred" bundle) as long as that bundle remains affordable.

What are goods? PRICE Who is a consumer (decision maker)?

• Immediate consumption An economic man:
• Completely informed
• No time value of money involved
• Makes his choices so as to maximize
• Eg: Fruits, electronics
something

Can insurance or stocks be treated as a good!!!!

ASSETS VALUE INVESTOR

But then why do we call Stock price and Business Value ?

 Corporate Finance summarized

Maximize Business Value

Investment Operating Financing

Dividend Decision
Decision Decision Decision

Equity & Debt How much to

Hurdle Rate?
Working Capital mix? Return?
Management? Right kind of
Return Rate ?
debt? How to return?