Introduction to Corporate Finance Corporates (Companies) · Owned by shareholders o Institutions and private investors o Right to vote at company meetings and to receive dividends o Limited liability · Managed by board of directors · Structured as a group o Holding company (parent); and o Trading companies o Listed (shares, PLC) announce "price sensitive" information. Or unlisted (stocks, PLC) Financial Management Stages 1. Financing 2. Investing 3. Dividends Company Annual Reports Relevant sections- · Chairman statement- overview · CEO operational review- what's going well · CFO financial review- numbers · Consolidated financial statements o Income statement o Cashflow statement o Preceded by release of preliminary results Corporate Performance External Factors- Uncontrollable · Economy
· Foreign exchange · Actions of competitors · Legal and regulatory framework Internal Factors- Consolable if Proactive · Sectors and products/services · Geographical spread · Operational efficiency · Financial efficienc Corporate Stakeholders Stakeholder Objective Shareholder Return on investment Lenders Repayment of debt Employees Pay and prospects Customers Security of supply Suppliers Security of customer (repayment of debt) Society Minimising environmental impact and employment Corporate Objectives Maximise long term shareholder wealth Reflected by: Achieved by · Share price rising over time · Dividend stream rising over time · Directors when they seek to increase present value · Long term objectives · Focus on cashflow · Raising funds using correct finance mix · Investing in best projects · Appropriate dividend policy · Acceptable risks The Agency Problem · Jensen and Meckling 1976 · Ownership and control (share and board) are separate
· Problem occurs if directors (agents) act in their own best interests rather than shareholders (principals) best interests.