Corporate finance.

CORPORATE FINANCE

28/09/2016

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THE SUBJECT:

• What is corporate finance? How the companies make and raise money.

Corporate Finance is the area of finance dealing with the sources and uses of funding and the capital structure of corporations and the actions that managers take to increase the value to the shareholders. Therefore, both financing strategies and investing strategies are concerned.

• Differences between financing strategies and investing strategies? [pic 2][pic 3][pic 4][pic 5]

Investing: how the Company uses the money. Financing: how the Company may rise the necessary money.

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DECISIONAL FIELDS (3):

Corporate finance decisions can be divided into three main different areas which are, anyway, strictly linked each other.

1 Investing decisions (how to use resources)[pic 8][pic 7]

2 Financing decisions (how to raise resources)

3 Ordinary business administration (O.B.A) decisions (this refers to the dynamics of financial flows and the management of working capital)        Short term decision[pic 9]

Extraordinary finance: in the life of the company some extraordinary events can happen.

A CORRECT CORPORATE FINANCE ACTIVITY:

Planning activity: a previous activity you write about what kind of investment, how to spend money…

A complete and structured planning activity is the preliminary condition for a correct process of financial resources management within the company’s structure.

This planning activity has the aim of keeping safe the financial situation both in the short and in the long term. CORRECTLY BALANCED (keeping safe the financial situation). Balance entre el dinero que hace y el que usa.

Moreover, it allows the company’s managers to coordinate the decisions related to the three previously mentioned decisional fields. Coordination between the three decisions.

THE ANALYSIS: TOOLS:

The analysis of a financial statement can be performed through the use of different tools, such as the following.

• Financial ratios
• Budgeting (projections)
• Flow analysis (cash flows)

The latter, in particular, is the most widely used in cash flow analysis. The flow analysis is the most suitable method to assess the financial dynamics of a company because it focuses on flows and not on static items.

FINANCIAL STATEMENT ANALYSIS vs CASH FLOW ANALYSIS (corporate finance): IMPORTANTE

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Accounting analysis: need one balance sheet to determine equity trough ratios at one time

Financial Analysis: need two balance sheets to determine differences over time.

Accrual basis: certain period of time (monthly, weekly…)

05/10/2016

THE FINANCIAL STATEMENT ANALYSIS:

The financial statement analysis deals with examinations which go beyond the simple calculation of the net profit and the valuation of corporate assets. It is possible to identify:

• Profit and Loss analysis;
• Balance Sheet (asset and liabilities) analysis;
• Cash flow analysis, which highlights the ability of a business to face its financial needs and obligations.

Therefore, cash flow analysis is a part of the more comprehensive process called ‘’financial statement analysis’’.

CASH FLOW ANALYSIS: A DYNAMIC ANALYSIS

The financial statement analysis, through the analysis of profit & loss, asset & liabilities or ratios, focuses on the financial structure of a company at any given time (in particular the financial statement reference date) and shows how the situation changes from one financial year to the other.

On the other hand, cash flows analysis clarifies the reasons why certain variations have occurred. Being this kind of analysis focused on the variations occurred through the financial year, it is defined as dynamic.

INTRODUCTION TO FINANCIAL STATEMENT

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Assets:  Some examples of assets which are obvious and will be reported on a company's balance sheet include: cash, accounts receivable, inventory, investments, land, buildings, and equipment.

Equity: The value of an asset less the value of all liabilities on that asset.

Uses of cash: investing

FINANCIAL STATEMENT: CHARACTERISTICS

The objective of a financial statement is to provide an information that is useful in making economic decisions.

The comparability of the information of the company’s financial statements of previous years is really important.

The income statement and the balance sheet are prepared under the accrual basis of accountings.

INCOME STATEMENT

The objective of every business is to increase the company’s value.

The Profit and Loss (Income Statement) reports all the revenues of the business and all the costs of a given period (financial year) and leads to the earnings of that period, which is the net addiction/deduction to the company’s wealth.

It reports both operating and non-operating activities.[pic 40][pic 41]

Operating activities are the functions of a business related to the provision of its offerings. These are the company's core business activities, such as manufacturing, distributing, marketing and selling a product or service. Operating activities should generally provide the majority of a company’s cash flow and largely determine whether a company is profitable.

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