Introduction to Corporate

Finance
3 Major Decisions under CF / FM
• Finance
• Public Vs Pvt
• Long Vs Short Term
• Capital Structure
• Equity, Debt, Pref
shares, 60,30,10;
Financial Leverage
• Cost of capital < IRR
• Profitability
• M&A
• Foreign trade reporting and hedging
• Investment • Distribution
• Labour Vs Capital • Cash Vs Stock div
Intensive: Operating
• Share buy back
Leverage
• Short Vs Long or Current
Vs Fixed
• Mgt of drs, inventory,
cash mgt
• Capital Budgeting:
conclude on fixed
asset buying
Financial Services: Intermediary, Regulator
• Companies
• Raise funds from IPO, FPO, Debt issue:
IB, Loan syndication
• Raise funds from domestic or
foreign markets: IB
• Reporting to Exchanges, controlled by SEBI
• Business Valuation
• Regulators
• SEBI, NSE, BSE, RBI, IRDA
• IAS-ICAI, IFRS-International Accounting Standard
Board, GAAP- Financial Accounting Standard Board
• How share value in the secondary market impacts the company issued the share?
Time Value of Money
• Investors: Short and Long term
• Short term: Months, intraday, prop traders
• Long term: For Div and capital gains. For Corp
control – M&A, VC or PE
• Services to these
• Business Valuation, equity research and
Analytics: Fundamental and technical
• Market micro-structure
• Portfolio mgt / Wealth mgt / Fin Planning
• Derivative Analytics
 Financial System
• Financial System: mechanism through which savings are generated and mobilized to investors / companies.
Comprises of
• Financial Instruments / products / assets (Vs. real assets)
• Financial intermediaries / institutions: Credit rating, IB, research, MA
• Financial markets: Capital and money market, primary and secondary market
• Primary: Public issue Vs Private placement, VC / PE
• Public Issue: IPO / FPO / Offer for Sale / Rights: Investment banking and Book building process
• Authorised, issued, subscribed, capital. Book value Vs Market Value, Accounting-based and
market-based measures of performance
• Equity / Preference Shares: Cumulative Vs Straight / Debt, Capital Structure
• Fixed Vs floating rate debt, Convertibles and embedded options, Warrants, ESOPs
• Zero coupon bonds – T-bills
• Other methods of Financing / Off balance sheet financing
• Leasing
• Securitization and credit enhancement: Obligator, Originator, SPV, Investors: MBS / ABS
Financial Markets
New Issues
market (Primary
Money Market market)

Financial markets Securities Market

Capital Market Secondary

Markets
Other forms of
lending and
borrowing
Agency Problem and Corporate Governance

• Agency Problem:
• Secured Vs unsecured
• Debenture trust deed and positive and negative covenants
• Residual claim on income and assets
• Right to control through voting
• Pre-emptive right: right issues
Secondary markets
• OTC
• CFDs
• Exchanges / Market microstructure
• Order Vs Quote driven market
• Continuous Vs Call market
• Rolling settlement Vs Trade-for-trade segment
• Price bands / circuit
• NSE Website
• Spot Vs Derivative