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1. Introduction
Summary
I.
III. Financial Instruments and the Securitization of Assets and Capital of the
Corporation
Value creation
However,
It is also very important that the financial function helps the firm as a whole to
create value, namely by meeting the requirements allowing the firm to implement
all investment projects with a positive NPV.
Are these objectives compatible? Can the firm adopt more than one objective?
MIF/ME/MIM 2014/2015: Corporate Finance/Financial Management
Fixed Assets
FCFi
A
i
i 1 (1 r )
di
i
i 1 (1 rs )
Financing
Equity
Entreprise or firm
value
1. Tangible
2. Not tangible
Debt
Working Capital
Current Assets
Short-term
Liabilities
Ci
N
i
(1 rd ) n
i 1 (1 rd )
Creditors
Managers
Managers
might
manipulate
information
in
order
to
misinform the markets. Markets
can also be wrong.
Financial Markets
MIF/ME/MIM 2014/2015: Corporate Finance/Financial Management
Society
Agency conflicts
7
providing that:
Managers act in the interest of shareholders and adopt the objective of maximizing
stock prices;
Creditors are protected against the risk of wealth expropriation by shareholders;
Managers do not manipulate information and do not succeed in cheating the
markets (efficient markets);
Management decisions do not impose costs (externalities) on society.
10
They allow for the choice of models to select the best investment projects
for the company and their best financing structure, and facilitate empirical
11
How?
Investment Decisions
Financing Decisions
Dividend Decisions
The return on
the asset must
take into
consideration
the amount and
timing of cashflows
The nature of
debt depends
on the
characteristics
of the
enterprise
assets
Dividend policy
will depend on
shareholders
preference for
cash or stock
dividends.
12
How to finance the aggressive investment plan designed for the next three
years?
13
14
15
Summary
I.
16
Exchange
of capital
& real
assets
Direct financing
Investment
decisions
Financing
decisions
Indirect financing
Financial
Intermediaries
Corporate Finance
MIF/ME/MIM 2014/2015: Corporate Finance/Financial Management
Investors
World
The Corporation
Financial
Assets
17
Financial Markets
IMM
Money Market
(S-T)
Yields
Commercial Paper
[Corporate Debt]
Capital Market
(L-T)
Repurchase agreements
(REPO)
Equity
(Stocks)
Common stocks
Preferred stocks
Debt
(Bonds)
Hybrid
Yields
Convertible bonds
Warrant bonds
Perpetual bonds
18
19
Auxiliary Institutions
Other Financial
Institutions
Banks
Other
Intermediaries
Brokers
Insurance Companies
Commercial
Banks
Leasing
Companies
Pension Funds
Savings
Banks
Factoring
Companies
Assets Management
Firms
Investment
Banks
Dealers
Information Services
Insurance Brokers
Mutual
Banks
Venture
Capital
Mutual Agro
Banks
Private Equity
Holding
Companies
Other
Other
20
inefficiencies.
21
Summary
I.
22
23
solvency ratios;
flexibility.
24
25
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