COURSE TITLE:

Corporate Finance
COURSE CODE:

(FIN 722)
PROFESSOR:

Muzaffar Hashmi
1

Recommended Books

Fundamental of Corporate Finance (7th Edition)

By: Richard A Brealey, Stewart C Myers
Principle of Corporate Finance (4th Edition)
By: Richard A Brealey, Stewart C Myers
Essential of Corporate Finance
By: Stephen A Ross, Randolph W Westerfield,
Bradford D Jordan

Corporate Finance
Scheme of Studies:
MODULE # 1 : OVERVIEW OF CORPORATE FINANCE
MODULE # 2 : VALUATIONS OF FINANCIAL

INSTRUMENTS LIKE STOCKS SHARES & BONDS

MODULE # 3 : CAPITAL BUDGETING
MODULE # 4 : RISK STRATEGIES & MANAGEMENT
MODULE # 5: COST OF CAPITAL
MODULE # 6 : SHORT TERM FINANCE & CAPITAL
STRUCTURE
MODULE # 7 : SPECIAL TOPICS MERGERS &
ACQUISITIONS
MODULE # 8 : INTERNATIONAL OPERATIONS

Lecture 1: Module # 1: Introduction to Corp Finance

TO START A BUSINESS - THREE

QUESTIONS ARISES:

1. What type of assets do we needs?

2. Where the money will come from
to buy these particular assets?
3. Day to day or Routine financial
expenses, how to meet them? 4

Lecture 1: Module # 1: Introduction to Corp Finance

QUESTION # 1: SELECTION OF
ASSETS:
CAPITAL BUDGETING

CB is defined as process of planning,

analyzing and acquiring of capital.

Lecture 1: Module # 1: Introduction to Corp Finance

CB decisions are irreversible in nature

SWOT Analysis :

S Strength
W Weakness
O Opportunities
T Threats

CB targeted towards potential

opportunities

Lecture 1: Module # 1: Introduction to Corp Finance

Opportunities of a Business Entity

depends on nature of intended business

Example: Air line Industry wants to add

an aircraft that generate more Cash
Flows. (i.e. Opportunity and acquire an
asset Plane)
Cargo Company - Trawlers
7

Lecture 1: Module # 1: Introduction to Corp Finance

Points keep in view by Financial Manager

& CB

Size of Investment
Risk
Timing
Evaluating Size, timing of CF and Risk
associated with CF is essence of CB

Lecture 1: Module # 1: Introduction to Corp Finance

QUESTION # 2:Where to get money

from to Finance Investment?
Ans: CAPITAL & ITS STRUCTURE

Two ways to finance an Investment:

Owners Equity
Loans or External Sources

Lecture 1: Module # 1: Introduction to Corp Finance

Terminology in Capital Raising

IPOs

IPOs stands for Initial Public Offerings

Company lunch their shares in market
Offer general Public
Share allotted on Draw

Lecture 1: Module # 1: Introduction to Corp Finance

QUESTION # 3

How to manage routine financial

activities?

Working Capital Basically Interaction between

Current Assets & Current Liabilities
Working Capital needs to meet financial
expenses
Current Assets - Current Liabilities = WC

OPERATING
CYCLE
Cash Flow from Customers used to
Pay Off Vendors

Vendors

Raw Material

Finished Goods

Sales to Customer

Cash from Customers

Cash Payment
from Customers

Lecture 1: Module # 1: Introduction to Corp Finance

Working Capital Policies

Level of Inventory Investment

Credit extension policy

Lecture 1: Module # 1: Introduction to Corp Finance

Types of Business
Sole ProprietorUn-Incorporated Business
Partnership
Limited Liability Business:

Private Company
Public Un-listed Company

Lecture 1: Module # 1: Introduction to Corp Finance

Limited Liability Business & Markets

Types of Markets:

Primary Market
Secondary Market

Lecture 1: Module # 1: Introduction to Corp Finance

Primary Markets
Original Sale of Securities and
shares
No tangible Shape
General Public offerings
Private placements
IPOs in Primary Market

Lecture 1: Module # 1: Introduction to Corp Finance

Secondary Markets
Subsequent to first sale or

Subsequent to original sale.

Trading of Securities & Shares
Tangible Markets
Example stock Exchange

Lecture 1: Module # 1: Introduction to Corp Finance

FINANCIAL STATEMENTS &

CORPORATE FINANCE

THREE BASIC STATEMENTS

BALANCE SHEET
INCOME STATEMENT
CASH FLOW STATEMENT

Lecture 1: Module # 1: Introduction to Corp Finance

BALANCE SHEET

Is a Statement of resources controlled by

the business entity and obligations on a
specific date.

Lecture 1: Module # 1: Introduction to Corp Finance

Contents of Balance Sheet

Assets = Fixed (tangible & intangible)&

current assets
Liabilities = Long Term Liability +
Current Or Short Term Liability
Equity = shareholders contribution +
earnings

Lecture 1: Module # 1: Introduction to Corp Finance

Fixed Assets:
Earning assets
Fixed Assets e.g. Plant, Machinery,
Vehicles etc
Current Assets:
Inventory, Prepayments, Cash & Bank
Balance, Short Term Investment etc

Lecture 1: Module # 1: Introduction to Corp Finance

Balance Sheet Format

Format of B/S in Pakistan is Governed

by International Financial Reporting
Standard or International Accounting
Standard
B/S construction is Non-liquid or
Illiquid Asset is at top

Lecture 1: Module # 1: Introduction to Corp Finance

Two Conventions for B/S

Construction

1st as in Pakistan IAS or IFRS

2nd Convention GAAP (General Accepted

Accounting Principle) applicable in United

States
GAAP In B/S top item is highly liquid
asset i.e. cash or near money

Lecture 1: Module # 1: Introduction to Corp Finance

Current Liabilities ingredients

Creditor, Accrued Liabilities, Short Term

Finances
Current Assets - Current liabilities equal
Working Capital

Lecture 1: Module # 1: Introduction to Corp Finance

Liquidity

Conversion into cash without losing its

value.
Timing
Loss of value
Example: Bonds

Lecture 1: Module # 1: Introduction to Corp Finance

Equity & Long Term Liabilities

Equity

Paid up Capital
Reserves
Profit & Loss

Long Term Liabilities

Loans OR Financial Leverage