CHAPTER 1 Corporate Finance Süreyya Yılmaz -RA

Transcript:CHAPTER 1 Corporate Finance Süreyya Yılmaz -RA:
CHAPTER 1 Corporate Finance Süreyya Yılmaz -RA Working Capital Management 2018 PROCESS What is the corporate finance? What is the balance sheet and income statement? Return on Investment Investor’s Expected Return Why this chapter is important? CORPORATE FINANCE Corporate finance consists of the financial activities related to running a corporation, usually with a division or department set up to oversee the financial activities. Corporate finance is primarily concerned with maximizing shareholder value through long-term and short-term financial planning and the implementation of various strategies. Who is investor? Investor who is willing to invest his or her capital in exchange for a return on the investment. What do they care for? How much of a return? As a financial economists would say, the riskier the investment is, the higher the expected return. What does investment include for investor? This money is invested in what is called the firm’s assets, which include everything such as; property, plant and equipment, inventory and cash to less obvious items such as costumers’ financing. Small firms; investor makes all of the firm’s investment other cases, particularly as firms grow, the firm’s management are tasked with making these decisions. What is the profit? A financial gain, especially the difference between the amount earned and the amount spent in buying, operating or producing something. There are two types of contracts; Debt contracts Equity contracts Debt contract is one in which the firm schedules a promised repayment to the investor. The owners of the corresponding claim are called debt holders. Equity contract which the firm assigns to investors what can be considered the firm’s residual profit, that is, the profit that is left over after the firm covers its operating costs and its obligations to debt holders. The owners of the latter type of claim are named equity holders . What is the basic financial statements? What is the balance sheet? What is the income statement? The balance sheet provides a snapshot of the firm at a given moment in time. This report has two main parts: the left-hand side, which presents the assets of the firm, and the right-hand side, which shows the corresponding liabilities . The assets represent the investments made by the firm, whereas the liabilities characterize the way those assets have been financed. Balance Sheet Income statement The income statement is a representation of a firm’s normal business operations between two consecutive balance sheet statements.