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Lecture 1

FIN 357 Lecture Notes - Lecture 1: Cash Flow, Current Liability, Capital BudgetingPremium

3 pages79 viewsSpring 2016

Course Code
FIN 357
Dave A.Laude

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1. Introduction to Corporate Finance
a. What is Corporate Finance?
i. The purpose of a firm is to create value for the owner
ii. Balance sheet model of the firm:
1. Assets (left side)
a. Current: assets with short lives (i.e. inventory)
b. Fixed: assets that last a long time
2. Forms of financing
a. Debt (loan agreements)
b. Equity shares (stock certificates)
c. Liabilitiesshort term and long term
3. Capital budgeting: the process of making and managing expenditures on long-
lived assets
4. Capital structure: the popotios of the fi’s finance from current liabilities,
long-term debts and equity
5. Net working capital: short-term management of cash flow (current assets
minus current liabilities)
iii. The Financial Manager
1. Finance activity usually associated with a top offer of the firm (VP or CFO)
a. Treasurer: responsible for handling cash flows, managing capital
expenditure decisions, and making financial plans
b. Controller: handles the accounting function (taxes, cost and financial
accounting and info systems)
b. The Importance of Cash Flows
i. Cash flows paid to bondholders and stockholders of the firm should be greater than the
cash flows put into the firm by bondholders/stockholders
iii. Sometimes it is difficult to observe cash flow because most of the information we get is
from accounting statements
iv. The value of an investment depends on the timing of cash flows (one dollar today is
worth more than a dollar the next year)
v. A firm must always consider risk because the amount and timing of cash flow is not
always a guarantee
c. The Goal of Financial Management
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