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The process of planning and
Capital Budgeting managing a firm’s long‐term
activities
The financing of the firm through a
Captital Structure
mixture of debt and equity
The amount of money available for
Working Capital
day‐to‐day operation of a business
How does it all hang together ( Financial market play a vital role in in Corporat finance )
Standard financial instruments
Shares
Debt Credit
Bonds
Treasury bills
Notes
Commercial papers
4 Key financial Markets
Money markets are the markets for debt securities that
Money Markets comprise of a series of closely connected wholesa
Interbank market is a fo
Captial Markets Capital markets are markets for long‐term debt
Primary markets
This market is used when governments and corporations initially sell securities or initial public offerings (IPOs) Corporat
Secondary markets
After debt and equity securities are originally s
Question to ask Finance concepts
In what long‐lived assets should you invest
1.Net present value
–what lines of business you want to enter and
2.Internal rate of return
sorts of buildings, machinery and equipment
3.Cost of capitalCapital
will you need?
1. Equity securities (e.g.
shares)
2.Debt securities (e.g.
How can you raise cash for your investment?
bonds, short‐and long‐term
loans)
3. Cost of capital
1. Current assets
2. Current liabilities
How should short‐term operating cash flows be
3. The formula for
managed (e.g. collecting from customers and
calculating working capital
paying suppliers)?
is Current assets –current
liabilities
in Corporat finance )
Advacend financial
instruments
Equite in retuen from cash Options
Loans Futures
A bond is a debt security, in which the issuer
owes the holders a debt and is obliged to pay
interest and repay the principal at a later date. Swaps
A bond is a formal contract to repay borrowed
money with interest at fixed intervals
A treasury bill is a short term (less than one
Convertibles
year) government zero coupon bond.
A debt security with a maturity longer than one
year but less than 10 years. Because of many
investors' aversion to long‐term investments,
notes are becoming more prominent
benchmarks of the bond market.
Commercial Paper is a money‐market security
issued (sold) by large banks and corporations to
get money to meet short term debt obligations
(for example, payroll), and is only backed by an
issuing bank or corporation's promise to pay
the face amount on the maturity date specified
on the note. Since it is not backed by collateral,
only firms with excellent credit ratings from a
recognized rating agency will be able to sell
their commercial paper at a reasonable price.
kets for debt securities that will pay off in the short‐term (usually less than one year) They
f closely connected wholesale “over‐the‐counter” (OTC) short‐term financial markets
Interbank market is a form of money markets Money
markets for long‐term debt (with a maturity at over one year) and for equity shares
lic offerings (IPOs) Corporations engage in 2 types of primary‐market sales of debt and equity: public offerings and private
uity securities are originally sold, they are traded in the secondary marketsCapital
Treasury bills,
commercial
paper
bonds , shares
New ipo , bonds
previously issued
securities and
financial
instruments such
as stock, bonds,
options, and
futures are
bought and sold