Corporate Finance

By: Raza Saeed

MBA, FCMA, ACIS, DAIBP, CIA (USA)

Corporate Finance
The concept of Corporate Finance
Understanding Financial Statements
Financial decisions
Organizing business
Role of financial manager
Career in finance
Goals of corporations
Corporate Finance
Goal:
To enhance corporate value while
reducing the company's financial risks.
To maximize the company s' return on
capital

Corporate Finance
Corporate finance
an area of Finance dealing with the financial
decisions company make:
Investment Decision
Financing Decision
the tools and analysis used to make these
decisions.
The discipline:
Long-term and
short-term decisions and techniques.

Corporate Finance
Long-term Choices:
Capital Investment decisions e.g. which projects
receive investment, whether to finance that
investment with equity or debt, and when or whether
to pay dividends to shareholders.
Short term decisions:
Working Capital Management .
deals with the short-term balance of Current Assets
and Current Liabilities;
the focus here is on managing cash, Inventories, and
short-term borrowing and lending (such as the terms
on credit extended to customers).


Financial Manager
Treasurer
Responsible for cash management, raising
capital, banking relationship
Financial Controller
Responsible for preparation of financial
statement , accounting and taxes
Chief Financial Officer (CFO)
Responsible for financial policy and corporate
planning

Career in Corporate Finance
Commercial Banking
Credit Officer/Manager
Relationship Officer
Corporate Head
Corporate Finance
Financial Analyst
Credit Manager
Chief Financial Officer
Money Management
Portfolio manager
Forms of Businesses
Sole Proprietorship
Partnership
Company
Limited by shares
Private Limited Company
Public limited Company
Un-quoted
Quoted on Stock Exchange
Limited by Guarantees

Limited Company
Distinct legal entity
Separate from its shareholders/directors.
its own rights and liabilities.
It can borrow money and invests funds,
Own property,
sue and be sued,
enter into contracts etc.
Limited Company
Limited liability - protection of personal
assets
limited liability to its members.
Debts of company
Personal property of the shareholders
Easy measurement of investment of
every person
The investment of every person is known /
determined

Limited Company
Easy transferability of ownership of
shares

Perpetual succession
In distinction to partnership, the death of one
or more or even of all the members does not
affect its legal status
Limited Company
Easy to raise funds

Part of regulated and documented
sector accountability and responsibility
Preparation and audit of accounts

Limited Company
Elevation of business status
Incorporation gives a status higher than
partnership and Proprietor-ship in the
organizational hierarchy.
Establish credibility
more credibility among potential customers,
vendors, partners and employees
Compact legal and organizational
framework
Goals of the Company
Maximize Market Value
The Investment Trade off
Opportunity Cost of Capital
Value Maximization
Opportunity Cost of Capital
Minimum acceptable rate of return on
capital investment
Alternate investment opportunities & risk
of proposed investment project
Financial Markets &Institutions
Importance of Financial Markets &
Institutions
Stock Market
Other Financial Market
Financial Intermediaries
Financial Institutions
Cost of Capital

Importance of Financial Markets &
Institutions

Decisions are made in financial
environment
Financial environment;
Financial Market
Financial institutions
Financing needs of companies
Surplus cash & no need for financial need
Stock Market
A stock exchange is An organized marketplace
used for trading.
Where brokers and dealers buy and sell stocks of
publicly traded companies on investors behalf.
Index :
A benchmark for comparison To Show the equity market
performance
Composition of KSE 100 Index: Representative
100 Companies common stock that trade on KSE
& around 88% of the total market capitalization
KSE
KSE Established in 1947, with 5 listed companies
and a paid up capital of Rs.37 million.
KSE is the biggest and most liquid stock exchange
in Pakistan.
KSE Current Standing As on February 15, 2013,
573 companies were listed with the market
capitalization of Rs.4,242.278 billion having listed
capital of Rs.1,094.367 billion.
Role of Stock Market
Mobilizing domestic and foreign resources.
Channel the resources to the most
productive medium and long-term uses.
Raising Capital for Businesses
Mobilizing Savings for Investment
Redistribution of Wealth
Improving Corporate Governance
Role of Stock Market
Creates Investment Opportunities for
Small Investors
Govt. Raises Capital for Development
Projects
Barometer of the Economy
Other Financial Market

Fixed Income Market

Capital market

Money Market
Financial Intermediaries
An organization that raises money from
investors and provides financing for individual,
companies and other organizations

Mutual funds

Pension funds
Financial Institutions
Commercial Banks 44 (9,399 Br.)
Pakistani 32
Public Sector 9
Domestic Private 23
Foreign Banks 12
Investment Banks
Investment Banks 3
Modaraba 26
Leasing companies 10
Insurance Companies 59
Public sector 4
Private sector 50
Incorporated abroad 4

Cost of Capital
Minimum acceptable rate of return on
capital investment