COURSE OUTLINE
TOPIC 1: INTRODUCTION TO CORRPORATE FINANCE
TOPIC 2: EFFICIENT MARKET THEORY AND TESTS
TOPIC 3: LONG TERM FINANCING DECISIONS
TOPIC 4: MERGERS AND ACQUISITIONS
TOPIC 5: HYBRID FINANCING
TOPIC 1: INTRODUCTION TO CORRPORATE FINANCE
Corporate finance is a specialization within finance. It deals with management
decisions regarding the acquisition and investment of funds necessary for business
operations. This basically includes what the firm should invest in and how those
funds should be invested by the firm, how the daily financial activities of the firm
should be managed to meet cash requirements as well as firms’ goals.
DEFINITION OF CORPORATE FINANCE
– It is the study on the efficient and effective management of the financial
resources of an entity in order to achieve its corporate goals.
– It involves planning and controlling of the resources i.e. where the resources
should be raised and where the funds should be deployed.
– The objective of corporate finance is to ensure the optimal allocation of the
scarce financial resources of the entity.
– Corporate finance therefore deals with managerial decisions associated with
the acquisition and investment of funds.
– Its goal principally is to ensure that adequate funds are available to meet
current as well as long term/Capital expenditures at optimal costs.
– Corporate finance would also help a firm to achieve its corporate or strategic
goals.
ROLE OF CORPORATE FINANCE MANAGER
1. Financial planning and forecasting. This is the art of deciding in advance
those activities that are necessary in order to achieve the corporate goal.
2. Investment and finance. This involves deciding on the optimal investments
that firms should acquire or make and then arranging for the best means for
financing the acquisition.
3. Coordination and control. Since all business decisions have a financial
implication they must be coordinated and controlled centrally by finance
manager.
4. Dealing with financial/capital markets. Finance manager must understand
functions and operations of operating system including markets because it is
in the financial markets where funds are raised, investments made and
shareholders either rewarded or penalized.
GOALS OF CORPORATE FINANCE
– In order to make optimal corporate financial decisions, a firm must have a
goal or set of goals defined in terms of what to maximize or minimize.
– In theory, the corporate firm goal should be maximization of shareholders
wealth as reflected in the current market prices of the common/ordinary
shares.
– In practice however, firms do pursue many other goals including:
(1) Profit maximization
(2) Wealth maximization
(3) Customer satisfaction
(4) Social responsibility
(5) Responsibility to all stakeholders
