This is a comprehensive summary of the course “Corporate Financial Management”. Teaching material from the various lessons and related literature have been incorporated into the summary. In addition, various examples have been included as to clarify some rather abstract theories.
When you ...
• Goal: maximising the shareholder value → making a company a cash generating
activity! via investments!
o Investment and finance is applicable here!
o other goals:
▪ survive,
▪ avoid financial distress
▪ beat competition
▪ maximize sales or maker share
▪ minimize costs
▪ maximize profits
▪ maintain steady earnings growth
o The triple bottom line as goal: profit, social, environmental objective
nowadays!
▪ manager best serves shareholders interest by making decision that are
valued by shareholders who in turn reflect the broader societal and
environmental concerns of the general population! → assuming that
the shareholders have the same objectives and concerns as the
general population!
2
,Financial markets:
• Profit and loss account (income statement): only states the costs and returns
associated to your business
• Balance sheet: represents the values of the assets and the liabilities of the firm!
o in this case the investments cost would not be recorded on the profit and loss
account because it is not a cost but an investment! → only the depreciation
can be seen as a ‘costs’ and therefore are displayed here!
• Financial market consists of:
o Capital Market → Primary market OR Secondary market
o Money Market → Short-term debt
3
, o Capital markets:
▪ Concerns the primary market and the secondary market:
- Primary market: when a corporation issues securities (stocks or
bonds), cash flows from investors to the firm.
- Secondary market: involves the exchange of already issues
securities between investors (focus point)
o Securities may be exchange traded or traded over – the-
counter in a dealer market.
o involves one owner or creditor selling to another!
o this market provides means for transferring ownership of
corporate securities!
o Shares that are traded on an organized exchange are said to be
listed on that exchange or publicly listed.
o In order to be eligible for exchange a firm needs to have e.g. a
certain asset size, number of shareholders. Moreover, the firm
needs to have at least three years of financial account filed
with regulator.
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