Corporate Finance

What is Corporate Finance?

– Business involves decisions which have financial consequences and any decision that involves the use of money is said to be a corporate finance decision.

– Corporate finance is one of the most important part of the finance domain as whether the organization is big or small they raise and deploy capital in order to survive and grow.

– These are the various roles that corporate finance plays, which are very interesting and challenging, one of the main roles is that of being a finance adviser.

– This can comprise helping to manage investments or even suggesting a mergers and acquisitions (M&A) strategy.

Corporate Finance Principles

Investment Principle:
This principle revolves around the simple concept that businesses have resources which need to be allocated in the most efficient way.

Financing Principle:
The job here for the corporate financier is to make sure that the business has right amount of capital and the right mix of debt, equity and other financial instruments.

Dividend Principle:

So the basic discussion here is that if the excess cash should be left in the business or given away to the investors/owners.

Understanding the concepts

Capital budgeting

Capital budgeting is the process of planning expenditures on assets (fixed assets) whose cash flows are expected to extend beyond one year. Managers study projects and decide which ones to include in the capital budget.

*The “capital” refers to long-term assets.
*The “budget” is a plan which details projected cash inflows and outflows during future period.

Time value of money

If you have a dollar today, you can earn interest on it and have more than a dollar next year. For example, $100 of today’s money invested for one year and earning 8% interest will be worth $108 after one year.

Benefits of Private Equity

Private equity enables companies to better exploit their potential. With the capital that private equity firms and their funds provide, they can drive their development and remain independent.

Raising money for your business through equity finance can have many benefits, including:

  • The funding is committed to your business and your intended projects. Investors only realise their investment if the business is doing well, eg through stock market flotation or a sale to new investors.
  • You will not have to keep up with costs of servicing bank loans or debt finance, allowing you to use the capital for business activities.
  • Outside investors expect the business to deliver value, helping you explore and execute growth ideas.
  • Some business angels and venture capitalists can bring valuable skills, contacts and experience to your business. They can also assist with strategy and key decision making.
  • Like you, investors have a vested interest in the business’ success, ie its growth, profitability and increase in value.
  • Investors are often prepared to provide follow-up funding as the business grows.

 

minamargroup.com

investorrelations.mmg@gmail.com

The Advantages of Company Mergers

Mergers happen when two businesses join together to create a single, unified company. Business owners may enter into merger negotiations for a variety of reasons, with mergers generally happening between large and small companies. A small, struggling business might become absorbed by a large conglomerate. Two large companies may join forces to become stronger.

The main benefit of mergers to the public are:

1. Economies of scale. This occurs when a larger firm with increased output can reduce average costs. Lower average costs enable lower prices for consumers.

2. International competition. Mergers can help firms deal with the threat of multinationals and compete on an international scale. This is increasingly important in an era of global markets.

3. Mergers may allow greater investment in R&D This is because the new firm will have more profit which can be used to finance risky investment. This can lead to a better quality of goods for consumers.

4. Greater efficiency. Redundancies can be merited if they can be employed more efficiently. It may lead to temporary job losses, but overall productivity should rise.

5. Protect an industry from closing. Mergers may be beneficial in a declining industry where firms are struggling to stay afloat.

6. Diversification. In a conglomerate merger, two firms in different industries merge. Here the benefit could be sharing knowledge which might be applicable to the different industry.

minamargroup.com
investorrelations.mmg@gmail.com

 

 

Benefits of IPO

There are various reasons why a company should consider an IPO.

 

Company will gather a significant amount of funds by opening up to the public and allowing shares to be traded in an organized market.

 

Benefits of IPO:

— Financing
— Liquidity
— Recognition
— Institutionalization
— SPOs
— Credibility

Financing
Public offering primarily provide companies the opportunity to obtain capital through a reliable organized, transparent market structure.

 

Liquidity
The shares offered to the public can be bought and sold in a transparent manner at the prices determined according to the market supply and demand at an arbitrary time, liquidity is provided to the shares and an important opportunity is provided to existing shareholders.

 

Global Recognition
Various information about the companies whose shares are traded on the Exchange are constantly being delivered to the foreign investors through global press, data broadcasting and other visual broadcasting organizations within the framework of the transparency of the Exchange and the function of public disclosure.

 

Institutionalization
Being publicly traded adds to a company’s stature as an institution, which can enhance its competitive position.

 

Secondary Offerings
Companies can create financing opportunities not only with the primary public offering but also with “Secondary Public Offerings” according to the resource requirements arising from their investment and similar needs while restricting the pre-emptive rights of existing partners.

 

Credibility
Listing their shares in the Exchange, companies increases their credibility in banking and money market which enables to obtain loans cheaper and easier.

 

minamargroup.com

investorrelations.mmg@gmail.com

Importance of Investor Relations

Investor Relations combines finance, communication, and marketing to effectively control the flow of information between a public company, its investors and its stakeholders.

It’s of the utmost importance for companies to maintain strong, transparent relationships with investors. Because of this in companies Investor Relations department comes into play.

Some of the main goals of investor relations are:

  • Enabling the company to achieve the optimum share price of the company that reflects fundamental value
  • Representing Company to investors and vice versa
  • In a timely and accurate way to provide financial information to investors
  • Building receptive capital markets for future financing at favorable terms

Benefits of Investor Relations Team

  • Maintaining loyal shareholder base
  • Enhancing long-term shareholder value
  • Ensuring receptive capital markets for future financing
  • Lowering the cost of capital
  • Building long-term credibility with the investment community

Because IR fulfills so many duties and functions in so many capacities, it’s essential that the department stay fully integrated with nearly every other department in the company, such as the legal and accounting departments, as well as with the entire executive management team.

minamargroup.com
investorrelations.mmg@gmail.com

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