Even an organization with excellent products and processes cannot survive without proper attention to its finances. This is because finance represents the flow of money through an organization—without money, no activities can last for long, and the business will fail. Corporate Finance addresses the practical aspects of fundraising and the deployment of cash.
By implementing the concepts in this course, you can improve an organization’s ability to raise funds at a reasonable price, while driving down the amount of working capital requirements and directing funds into those activities that will be best able to generate cash. You’ll gain an understanding of how to develop an appropriate capital structure and determine the best types of debt and equity funding. Additional tools are provided for calculating the cost of capital and constructing cash flows to analyze potential cash uses. Full coverage of risk management, supply chain management, and the use of measurements most applicable to corporate finance is also included.
Upon successful completion of this section of this course, participants will be able to:
- Identify the players involved in the practice of corporate finance, the different roles that they play, and services that are routinely provided.
- Recognize the components of capital structure, identifying key terms, common characteristics, and situations that may call for its revision.
- Cite an example of a tax shield and a common loan covenant.
- Identify key elements of a debt maturity structure, noting which businesses should be concerned with this issue.
- Identify the methods used to construct financial plans, noting key characteristics, terms, and measurements associated with each method.
- Recognize the methods available for obtaining early-stage funding, noting the characteristics and structure of each.
- Cite possible negative aspects associated with venture capital.
- Specify reasons for and against an initial public offering.
- Identify the steps to prepare and undergo an initial public offering.
- Cite public auditor registration requirements and the restrictions placed on a business during an initial public offering.
- Identify the different techniques available for selling shares outside of an initial public offering, citing key features, filing requirements, advantages, and restrictions associated with their use.
- Recognize terms associated with different types of debt financing, citing their characteristics and components.
- Recognize the concept behind leasing, including the elements analyzed in a lease versus buy decision.
- Cite advantages and disadvantages of lease financing.
- Identify the formula components for cost of capital measurements.
- Identify key characteristics associated with cost of capital and its derivations, noting variations, adjustments, and threshold value.
- Determine the cost of capital given a set of circumstances.
- Identify the different discounted cash flow concepts, noting their defining characteristics and how they are used.
- Recognize the impact of working capital on corporate finance, identifying the techniques used to control the amount of funds invested in working capital.
- Recognize the alternatives available for determining the worthiness of proposed capital expenditures, identifying key components, characteristics, usage, and outcomes.
- Identify the different investment strategies, noting their key characteristics.
- Identify different types of investments, citing the characteristics of the more common financial instruments.
- Recognize the defining characteristics of primary and secondary markets, effective interest rates, and the discounted investment formula.
- Identify the components in a dividend payout formula, the implications of a high ratio, and the impact on investors when dividends are first issued.
- Identify the different types of acquisition strategies, citing key elements, requirements, and usage for each type.
- Recognize the various methods that can be used to assess the valuation of a target company, identifying key components and proper usage.
- Recognize the implications of making different types of payment offers to the owners of an acquisition target.
- Recognize terms associates with foreign exchange risk, identifying hedging techniques used to mitigate foreign exchange risk.
- Identify types of foreign exchange hedges, noting their defining characteristics and proper usage.
- Cite the hedging techniques used to mitigate interest rate risk.
- Identify various types of interest rate hedges, noting the requirements for each type.
- Identify the elements of supply chain financing, noting conditions under which this type of financing is most likely to be accepted by suppliers.
- Recognize the financial metrics ratios used to measure the ability to pay, noting the contents of the ratio formulas and what the metrics indicate.
- Specify instances in which ratios can give misleading results.
Table of Contents
Chapter 1 – Overview of Corporate Finance
The Nature of Finance
Corporate Finance Topics
The Balancing Act of Corporate Finance
Chapter 1 – Review Questions
Chapter 2 – Capital Structure
Optimal Capital Structure
Capital Structure Analysis
The Financial Leverage Concept
Impact of Compensation on Leverage
Line of Credit Issues
Tax Shield Effects
Future Financing Flexibility
Loan Covenant Issues
Maturity Structure of Debt
Creditor Position Considerations
Cost of Capital Reduction
Planning for a Bond Rating
Timing of Changes to the Capital Structure
Chapter 2 – Review Questions
Chapter 3 – Financial Planning
The Cash Forecast
The Short-Term Cash Forecast
The Medium-Term Cash Forecast
The Use of Averages
The Reliability of Cash Flow Information
The Impact of Special Events
The Master Budget
The Budgeted Income Statement
Components of the Budgeted Balance Sheet
Additional Estimation Elements
The Cash Line Item
The Budgeted Balance Sheet
The Financing Budget
Chapter 3 – Review Questions
Chapter 4 – Early-Stage Financing
Dangers of Venture Capital
Chapter 4 – Review Questions
Chapter 5 – The Initial Public Offering
Reasons for and Against an IPO
Preparation for the IPO
The Initial Public Offering
Share Lockup Period
Blue Sky Laws
Chapter 5 – Review Questions
Chapter 6 – Other Capital Raising Alternatives
Regulation A Stock Sales
Solicitations of Interest
Forms 1-A and 2-A
Regulation D Stock Sales
Regulation D Rules
Regulation D Process Flow
The Form D Filing
The Accredited Investor
Private Investments in Public Equity
Title I – Reopening American Capital Markets to Emerging Growth Companies
Title II – Access to Capital for Job Creators
Title III – Crowdfunding
Title IV – Small Company Capital Formation
Title V – Private Company Flexibility and Growth
Seasoned Equity Offerings
The Rights Offering
Chapter 6 – Review Questions
Chapter 7 – Debt Financing
Overview of Debt Financing
The Line of Credit
The Borrowing Base
Purchase Order Financing
Hard Money Loans
The Long-Term Loan
Debt for Equity Swaps
Chapter 7 – Review Questions
Chapter 8 – Leasing
The Lease Arrangement
The Lease or Buy Decision
Chapter 8 – Review Questions
Chapter 9 – The Cost of Capital
Cost of Capital Derivation
Cost of Debt
Cost of Preferred Stock
Cost of Common Stock
Weighted Average Cost of Capital
Variations in the Cost of Capital
Adjustments to the Cost of Capital
Cost of Capital as a Threshold Value
Chapter 9 – Review Questions
Chapter 10 – Discounted Cash Flows
Time Value of Money
Present and Future Value Tables
Net Present Value
Internal Rate of Return
Incremental Internal Rate of Return
Inclusions in Cash Flow Analysis
Chapter 10 – Review Questions
Chapter 11 – Working Capital Management
The Impact of Working Capital on Corporate Finance
Accounts Receivable Enhancements
Accounts Receivable Policies
Product Record Keeping
Manufacturing Process Flow
Accounts Payable Enhancements
Early Payment Discounts
Payment Processing Frequency
Accounts Payable Policies
Researching Working Capital Enhancements
Working Capital Forecasting
Working Capital Strategy
Chapter 11 – Review Questions
Chapter 12 – Capital Expenditures
Overview of Capital Expenditures
Net Present Value Analysis
The Profitability Index
The Payback Method
Capital Expenditure Proposal Analysis
The Outsourcing Decision
Complex Systems Analysis
Chapter 12 – Review Questions
Chapter 13 – Investment Alternatives
Cash Availability Scenarios
Types of Investments
Certificates of Deposit
Money Market Funds
U.S. Government Debt Instruments
State and Local Government Debt
The Primary and Secondary Markets
The Effective Interest Rate
The Discounted Investment Formula
Chapter 13 – Review Questions
Chapter 14 – Dividends and Other Payouts
Types of Dividends
The Investor Viewpoint
The Company Viewpoint
The Stock Buyback Option
Deciding Between a Dividend and a Buyback
The Stock Dividend
Chapter 14 – Review Questions
Chapter 15 – Mergers and Acquisitions
The Sales Growth Strategy
The Geographic Growth Strategy
The Product Supplementation Strategy
The Full Service Strategy
The Vertical Integration Strategy
The Adjacent Industry Strategy
The Diversification Strategy
The Market Window Strategy
The Bolt-on Strategy
The Low-Cost Strategy
The Industry Roll-up Strategy
Valuation of a Target Company
Real Estate Value
Discounted Cash Flows
The Strategic Purchase
The Control Premium
The Valuation Floor and Ceiling
The Stock-for-Stock Exchange
The Exchange Ratio
Issues Impacting the Stock Payment Decision
Stock Payment Based on Fixed Share Count or Fixed Price
The Debt Payment
The Cash Payment
Chapter 15 – Review Questions
Chapter 16 – Foreign Exchange Risk Management
Foreign Exchange Risk Overview
Foreign Exchange Risk Management
Take No Action
Payment Leading and Lagging
Maintain Local Reserves
Types of Foreign Exchange Hedges
Loan Denominated in a Foreign Currency
The Forward Contract
The Futures Contract
The Currency Option
The Cylinder Option
Chapter 16 – Review Questions
Chapter 17 – Interest Rate Risk Management
Interest Risk Overview
Interest Rate Risk Management
Take No Action
Asset and Liability Matching
Types of Interest Rate Hedges
The Forward Rate Agreement
The Futures Contract
The Interest Rate Swap
Interest Rate Options
Interest Rate Swaptions
Chapter 17 – Review Questions
Chapter 18 – Supply Chain Financing
Supply Chain Financing
Chapter 18 – Review Questions
Chapter 19 – Corporate Finance Measurements
Corporate Finance Metrics
Cash Conversion Cycle
Days Sales in Accounts Receivable
Days Sales in Inventory
Days Payables Outstanding
Actual Cash Position versus Forecast
Earnings on Invested Funds
Ability to Pay Measurements
Interest Coverage Ratio
Debt Service Coverage Ratio
Fixed Charge Coverage Ratio
Cash Coverage Ratio
Debt to Equity Ratio
Average Cost of Debt
Borrowing Base Usage
Chapter 19 – Review Questions
Review Question Answers and Rationales
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