Description

Description: This course introduces the fundamentals of corporate finance and conveys managerial and analytical level understanding on financial topics such as capital structure, weighted average costs of capital, capital budgeting techniques, and financial ratio analysis.

This course features dynamic and engaging video with audio narration, infographics and short quizzes to test your knowledge.

Background: Business decisions that involve direct use of money fall within the spectrum of corporate finance. A broader definition of corporate finance also encompasses Business Finance, more applicable to small to medium size enterprises. It involves estimating the capital requirement, raising capital, investing, and monitoring funds towards the economic objectives of the entity.

Estimating Capital Requirement:
This task involves projecting the required funds for running the business (working capital), investments (capital expenditure) and expansion. This estimate needs to be commensurate with the required return on that capital and the firm’s capacity to source funds.

Raising Capital:
There are two main sources of capital for a firm: debt and equity. In debt financing external investors obtain a promise of fixed interest payments with the return of principal. These investors do not however assume any ownership of the business except holding possible security over specific assets. Debt finance may be sourced through a financial institution such as a bank, or from the market by issuing various instruments such as bonds or debentures. Equity investors own the company’s shares and do not expect a guaranteed return. Raising equity is commonly carried out by issuing shares. However, retained earnings can also be used as equity investment – when the firm holds onto internally generated profits for future capital requirements.

Other instruments referred to as hybrid securities may take a form between equity and debt. These securities have certain features that seem like equity and other elements that resemble debt. Warrants, preference shares and convertible bonds are such examples of hybrids.

Investing the Capital:
Company funds will have to be used for both long term assets and working capital requirements in optimal proportions. Working capital is engaged to pay short term liabilities such as direct materials, labour wages and salaries, and overheads such rent, power and fees. Fixed capital is engaged to obtain income producing assets such as land, buildings and equipment.

Monitoring Returns:
A company will continuously monitor its performance to ensure that expected returns on the engaged capital remains on track. Such monitoring is a complex undertaking that uses specialist techniques and reporting.