Business Finance in a Corporation

What is Corporation?
How can a person be shareholders of a
corporation?
Give examples of Corporation.
Who are the persons involved in a corporation?
What is the role of Financial Manager, VP Finance,
CFO?
Responsible for the financial health of an organization
Business Finance in a Corporation
What are the functions of Financial Manager?
1.Financing
2.Investing
3.Operating
4.Dividend Policies
Financing – to determine the appropriate capital
structure of the company and to raise funds from debt
and equity.

Ex. Financing decisions

- include making decisions on how to fund long
term investments (such as company expansions) and
working capital which deals with the day to day
operations of the company (i.e., purchase of inventory,
payment of operating expenses, etc.)
- to determine the appropriate capital structure of
the company.
Financing decisions
- include making decisions on how to fund
long term investments (such as company
expansions) and working capital which deals with
the day to day operations of the company (i.e.,
purchase of inventory, payment of operating
expenses, etc.)
- to determine the appropriate capital
structure of the company
B. Investing
• Short term investments:
1. Plan for expected excess in cash using
Financial Planning tools such as budgeting and
forecasting.
Lesson 3: Financial Planning Tools and Concepts.

2. Choose which type of investment should it

invest in that would secure the best profits.
Lesson 6: Introduction to investments.

•
C. Operating decisions
- to determine how to finance working
capital accounts such as accounts receivable and
inventories (short term vs. long term).

D. Dividend Policies
- determine when the company should
declare cash dividends.
 Before a company may be able to
declare cash dividends, two conditions
must exist:
1.The company must have enough
retained earnings (accumulated profits)
to support cash dividend declaration.
2.The company must have cash.
 1. Savings and Shortages
One of the functions of a financial manager is
financing and investing of funds.
Suppose you are a Financial Manager, during
your management of money, some cash will
remain. What will you do with that cash?
 1. Savings and Shortages
If you are going to save it, where would you
keep it ?
Suppose you had the business running and is
profitable for some time. You then decides to
expand your business but does not have enough
cash to pay for the expansion. Where you can
get the additional funding?
Distinguish a financial institution from
financial instrument and financial
market
 Financial Institutions
Intermediaries that channel the savings
of individuals, businesses, and
governments into loans or investments.
A financial market is a market in which
people trade financial securities,
commodities, and value at low transaction
costs and at prices that reflect supply and
demand. Securities include stocks and
bonds, and commodities include precious
metals or agricultural products.
Financial Instruments – is a real or a
virtual document representing a legal
agreement involving some sort-of
monetary value. These can be debt
securities like corporate bonds or equity
like shares of stock.
Private Placements - the sale of a new
security directly to an investor or group
of investors.

Public Offering - The sale of either

bonds or stocks to the general public.
• A stock is a type of security that signifies
ownership in a corporation and represents a
claim on part of the corporation's assets and
earnings.
• Also known as shares or equity.
• There are two main types of stock:
common and preferred.
• Common stock usually entitles the owner to
vote at shareholders' meetings and to receive
dividends. Preferred stock generally does not
have voting rights, but has a higher claim on
assets and earnings than the common shares.
• For example, owners of preferred stock receive
dividends before common shareholders and have
priority in the event that a company goes
bankrupt and is liquidated.
• A bond is a debt investment in which an investor
loans money to an entity (typically corporate or
governmental) which borrows the funds for a
defined period of time at a variable or fixed
interest rate.
• Bonds are used by companies, municipalities,
states and sovereign governments to raise money
and finance a variety of projects and activities.
Owners of bonds are debt holders, or
creditors, of the issuer.
Public Offering - The sale of either bonds
or stocks to the general public.
 When a financial instrument is
issued, it gives rise to a financial
asset on one hand and a financial
liability or equity instrument on the
other.
 A Financial Asset is any asset that is:
• Cash
• An equity instrument of another entity
• A contractual right to receive cash or another
financial asset from another entity.
• A contractual right to exchange instruments with
another entity under conditions that are potentially
favourable.
 Examples:
Notes Receivable, Loans
Receivable, Investment in stocks,
investment in bonds
 A Financial Liability is any liability that
is a contractual obligation:
• To deliver cash or other financial
instrument to another entity.
• To exchange financial instruments with
another entity under conditions that are
potentially unfavourable.
 Examples:
Notes Payable, Loans Payable,
Bonds Payable
Who are the holders of Financial
Assets.?
 Who the makers of Financial
Liabilities and Equity instruments
are?
Short Quiz 