Types of finance

1. Personal finance
2. Business finance or corporate finance
3. Public finance
4. International Finance
5. Finance of non- profitable organizations
6. Bank and Financial institutions
Corporate Finance
You are starting a business. The first thing you need is money. What are your options to get this money?
STARTING STAGE
- FFF (Friends Family and fools)
- Bootstrapping (The money you have of your own. Your own savings)
- Equity Financing
o Selling a part of your company to investors.
o This could be your friends, private equity investors, Venture Capital etc.
o You also lose freedom.
o Mostly done buy Angel investors.
- Debt Financing
o Taking loan from bank
o In return you have to give interest in a specific time period.

EXPAND STAGE
- Seed Funding: Venture Capital
- Series Funding
GROWTH STAGE
- Corporate Bonds
o Part of debt financing
o Analyzed by different credit ratings agencies.
- IPO
o Initial Public offering
o To build a brand and visibility of a firm

Why do investors invest in any business?

- To gain profit
- In the hope that the business will do well, and its valuation will increase in future.
- More specifically, they invest for major two reasons.
o One reason is appreciation: Appreciation occurs when an asset increases in value. For
example Investor purchase an asset in the hope that its value will grow and they can sell
it for more what he paid for it.
o Another reason is Income: Lets say you have brought a bond of XYZ company. That
means you have given a certain amount of money to that company and that company has

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 promised you to give interest in return over a specified period of time. So you have
invested the money and you are getting a payment for that. And that is basically you
income.
Different between VC inventors and Angel investors:

Venture Capital Angel Investors

 A form of equity funding who supports
entrepreneurs or startup companies and
small businesses that they think will have
long term growth potential.
 Generally, they provide fund more than 1
million.
 VC investors generally invest in those
ventures which has sable growth.
 VC investors generally do a proper
analysis before investing in any startups.
 Typically, an individual or a high wprth
individual investors who provide funding
or financial support.
 Generally, less than 1 m
 Example could be Bill gates.
 This is quite risky compared to VC
investors.

PERSONAL FINANCE

Goals
Rich Wealthy

Liability Assets
Liability which eats up your assets and does not generate any future cashflows Fixed Deposit

Liquidity Stocks
Diversify
Real estate

Commodities

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 Portfolio of your investment Cryptos

 Fixed Deposits

 Commodities
 Cryptos
 Real estate
 Stocks

Importance of corporate finance

- Capital crisis of business
- Backward Banking system
- Less Educated entrepreneur
- Production oriented Investment and national income

PRINCIPLE OF FINANCE
1. Liquidity vs. Profitability principle
- Liquidity and profitability have an inverse relationship.

Liquidity Profitability
(Working capital) (Fixed capital)
Buy
Current asset
(used to mitigate day to day obligation of a company) Fixed asset/investment

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 2. Competence Principle

Current asset Fixed asset

Short term fund long term fund

Income from sales commercial bank

Investment bank
Debenture holder

3. Diversification and risk distribution

Increase in Diversification Decrease in Volatility

4. Investment bank, Principles of risk and return

5. Time value of Money
6. Cash flow principle
7. Hedging Principles

PRINCIPLES OF CORPORATE FINANCE

- Investment principles
- Financing principles
- Profit maximization
- Wealth maximization
- Cost principle
- Capital structure.
- Portfolio
- Dividend

FINANCIAL MARKKET
There are two kinds of sectors.
- Surplus funds available such as households
- Those who in need of funds such as business

A financial market is any place or system where buyers and sellers gather to trade financial securities such
as bonds equity, various international currencies and derivatives. Financial markets facilitate the
interaction between those who need capital with those who have capital to invest.

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 TYPES OF FINANCIAL MARKET:

1. Money Market
- For short term fund
- Low risk
- Unsecured
- Debt instruments
- Major participants: Bangladesh bank, non-banking finance company, large corporate house,
commercial banks, Mutual funds.
 Commercial Paper
- It is a short term unsecured promissory note.
- Seasonal and working capital needs.
- Often it is the alternative to bank borrowings.
- Sold at a discount and redeemed at par.
 Treasury bill
- Zero coupon bonds
- Issued by central bank.
- Called risk-free security.
 Commercial bills
 Call Money
- This is short term finance used for inter-bank transactions.
- A method used for when banks borrow from each other to maintain the cash reserves.
 Certificate of deposit
 Repurchase agreement (repos)
-

2. Capital Market

- For long term fund.

- Debt and equity
- Long and medium
- Link between savers and investments.
- Shares, debenture and bonds
- High risk and high return

TYPES OF CAPITAL MARKET

1. Primary Market
In a primary market the interaction is direct between the company and the investors.

2. Secondary Market
In the secondary market the interaction is between investors to investors.

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Why Corporate finance is important?
- To take capital budgeting decision
- To take capital structure decision
- To have an idea on short term financing or net working capital.

CAPITAL BUDGETING

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