MBA

Business Finance
 Meet Your
Trainer
Farouk El-Baz
Farouk El-Baz is an Egyptian American space scientist and geologist, who
worked with NASA in the scientific exploration of the Moon and the planning
of the Apollo program.
He is also a member of the Board of Trustees of the Geological Society of
America Foundation, Boulder, Colorado, and a member of the Board of
Directors of CRDF Global. He was also elected a member of the U.S. National
Academy of Engineering in Washington, DC (2002) for selecting the landing
sites for the Apollo missions, and for pioneering methods of discovering
subsurface freshwater from space observations.

MBA - Business Finance 2022 © RB. College 2

Learning Roadmap
 Topic 3

Topic 3
Topic 3

Topic 1
Topic 3

Topic 2
 Our
Syllabus
● 8 Parts
● 22 Chapters
● 750 Pages
● Case studies
● 24 Teaching Hours

Philip Kotler

* It will not be covered from COVER to COVER

MBA - Business Finance 2022 © RB. College 5

Scoring Structure
 Scoring
Structure

MCQ / Essay >80%

Exam
20% Attendance
40%

Classwork
40%
Project / Assignments

MBA - Business Finance 2022 © RB. College 7

 Learning
Objectives
 Learning
Objectives
● the role of business finance

● the importance of the consideration of risk in

financial decision making
● the relationship between business finance and other
disciplines, particularly accounting
● the importance of the limited company as the legal form
in which most UK businesses exist

MBA - Business Finance 2022 © RB. College 9

 Learning
Objectives
● the nature of the limited company

● what is meant by limited liability

● the formation of limited companies

● the requirement for businesses trading as limited

companies to signal the fact to the world through the
company name

MBA - Business Finance 2022 © RB. College 10

 Learning
Objectives
● directors and their relationship with shareholders

● the duty of directors to account for their actions

● the way in which companies are managed

● corporate governance

● typical means of financing companies and the rights of

suppliers of corporate finance

MBA - Business Finance 2022 © RB. College 11

 Learning
Objectives
● liquidation of companies

● the nature of derivatives

● private equity funds

MBA - Business Finance 2022 © RB. College 12

Topic 1
 Business finance

• Investment decisions.
• Financing decisions.
• Usually involving significant amounts.
• Risk always a major factor.
• Not the same as accounting.

MBA - Business Finance 2022 © RB. College 14

 Figure 1.1
Relationship between risk and return

MBA - Business Finance 2022 © RB. College 15

Topic 2
 Organization of businesses

• Most UK businesses are limited companies.

• Artificial person, with separate legal personality.
• Enables investors to limit their losses on equity investments.
• Shares in the ownership of companies can be transferred.
• Cheap (about £100) and easy to form a limited company.
• Managed by directors on behalf of shareholders.
• Duty of directors to account for their management of the shareholders’ assets.

MBA - Business Finance 2022 © RB. College 17

 Corporate governance

• Corporate governance has become a major issue; scandals have led to the
emergence of a code of practice that directors of Stock Exchange listed
companies are expected to follow (the UK Corporate Governance Code).
• The Code is based on three guiding principles:
• Disclosure
• Accountability
• Fairness.

MBA - Business Finance 2022 © RB. College 18

 Corporate governance

• The Code includes provisions regarding the roles of:

• the chairman;
• executive directors; and
• non-executive directors.

MBA - Business Finance 2022 © RB. College 19

Topic 3
 Ownership of London Stock Exchange listed shares, by
UK-based investors, as at 31 December 2014
• This table only relates to 46 per cent of the shares. The other 54
per cent are owned by overseas investors.
• Similarly, a large proportion of overseas shares are owned by UK investors.

MBA - Business Finance 2022 © RB. College 21

 Long-term financing

• Businesses are financed long term by a combination of:

• ordinary shares (equities);
• preference shares; and
• borrowings.
• Ordinary shareholders are the ultimate owners of the company and share
profits and losses; all companies must have some ordinary shares.

MBA - Business Finance 2022 © RB. College 22

 Long-term financing

• Preference shares entitle the holders to the first portion

of any dividend paid up to a maximum level. They are relatively uncommon.
• Borrowing involves taking funds from lenders under a contractual relationship,
usually involving commitments
to pay interest and repay the principal.

MBA - Business Finance 2022 © RB. College 23

Topic 3
 Liquidation

Limited companies can only come to an end through a formal liquidation

(winding up).
Liquidation is usually initiated either by:
• the shareholders; and
• unpaid creditors (those owed money by the company) – often referred to as
‘bankruptcy’.

MBA - Business Finance 2022 © RB. College 25

 Liquidation

Order of payment of claimants (out of funds raised by selling the company’s

assets)
1. pre-preferential creditors (tax authorities (HMRC) and employees (for any
arrears of salaries and wages))
2. secured creditors – those whose loans are secured on a particular assets of the
business
3. unsecured creditors – those owed money by the company who do not have
specific security
4. the shareholders – in a forced liquidation, usually the shareholders will
receive nothing because there are insufficient funds.
MBA - Business Finance 2022 © RB. College 26
 Derivatives

• Assets or liabilities whose value is related to that of

some other asset.
• An option is an example of a derivative.
• Many derivatives have the objective of removing or reducing risk (e.g. an
option).
• Massive increase in business use of derivatives since 1980s.
• Nearly all large businesses use derivatives to a greater or lesser extent.

MBA - Business Finance 2022 © RB. College 27

 Private equity funds

• Funds pooled privately by large investors.

• Funds often used to buy listed businesses and delist them.
• Replace senior management and, typically, increase levels of borrowing.
• Resell the businesses, sometimes through relisting them.

MBA - Business Finance 2022 © RB. College 28

Thank
You!