corporate finance
ReferencesApplied Corporate Finance: A Users Manual (Second Edition) by Aswath Damodaran.Ross Stephen A.,(, 8), , 20091
What is Corporate finance
2005
2008
FINANCE
1.1
Corporate finance is a specific area of finance that analyzes the financial decisions of corporations.
The Balance-Sheet Model of the Firm
Current Assets
Fixed Assets1 Tangible2 Intangible
Shareholders Equity
Current LiabilitiesLong-Term Debt
What long-term investments should the firm engage in?The Capital Budgeting DecisionThe Balance-Sheet Model of the Firm
How can the firm raise the money for the required investments?The Capital Structure Decision
Current Assets
Fixed Assets1 Tangible2 Intangible
Shareholders Equity
Current LiabilitiesLong-Term Debt
The Balance-Sheet Model of the Firm
How much short-term cash flow does a company need to pay its bills?
The Net Working Capital Investment Decision Net Working Capital
Shareholders Equity
Current LiabilitiesLong-Term Debt
Current Assets
Fixed Assets1 Tangible2 Intangible
The Balance-Sheet Model of the Firm
Corporate Financial DecisionsCapital Budgeting (The process of planning and managing a firm's investments in fixed assets. It is concerned with the size, timing, and riskiness of cash flows.Financing Decision The mix of debt and equity used by a firm. What are the least expensive sources of funds? Is there a best mix?When and where to raise funds?Working Capital Management Managing short-term assets and liabilities.How much cash and inventory to keep around? What is our credit policy? Where will we obtain short-term loans?
To create value, the financial manager should:Try to make smart investment decisions.Try to make smart financing decisions.
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(Berle and Means,1932)
When managers do not fear stockholders, they will often put their interests over stockholder interests GreenmailGolden ParachutesPoison Pills When the cat is idle, the mice will play ....
Overpaying on takeovers
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The quickest and perhaps the most decisive way to impoverish stockholders is to overpay on a takeover. The stockholders in acquiring firms do not seem to share the enthusiasm of the managers in these firms. Stock prices of bidding firms decline on the takeover announcements a significant proportion of the time. Many mergers do not work, as evidenced by a number of measures.The profitability of merged firms relative to their peer groups, does not increase significantly after mergers.An even more damning indictment is that a large number of mergers are reversed within a few years, which is a clear admission that the acquisitions did not work.Overpaying on takeovers
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(Jensen and Meckling, 1976)
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