INTRODUCTION TO

CORPORATE FINANCE

Prof. Prashant Sharma

Associate Professor
Fellow (NIFM, Ministry of Finance, GoI)
prashantsharma1989@gmail.com
 THE FINANCIAL SYSTEM
 Financial
Intermediary
Indirect

Funds
Suppliers of Funds Demanders of Funds
Individuals Individuals
Direct
Businesses Businesses
Governments Governments
Securities
 THE FINANCIAL SYSTEM
Financial Institutions
Funds Funds
Commercial Banks
Insurance Companies
Deposits/shares
Mutual Funds Loans
Provident Funds
Non Banking Financial
Institutions

Suppliers of Funds Demanders of Funds

Funds
Individuals Individuals
Businesses Private Placement Businesses
Governments Securities Governments

Funds Financial Markets Funds

Money Market
Securities Capital Market Securities
What is finance?
•Management of money
•Management involves decision making
related to different aspects such as ……
Key Decisions Under Corporate Finance
Working
Day to Day
Capital
Management
Management
of Capital
Decisions

Long-term Long-term Capital Capital

Financial Financial
Arrangement Investment of Structure Budgeting
Management Management
of Capital Capital Decisions Decisions

Management Dividend
of Profits Decisions
Accounting versus Finance?
Long Term Source of Finance
• Equity Capital & Retained Earnings
• Preference Capital
• Term Loans & Debenture/Bonds Capital
Equity Shares
• Part of ownership which is subscribed by the general/any investors.
• 1. Once the shares are subscribed by the company, these can’t be surrendered to
the organization against the money (till the time the organization has not offered
for same).
• 2. These shares can be sold in the share market.
• Why do investors invest in the shares?
• Good Returns (Dividends – Not Mandatory for the organization to distribute, Market
Price rise of their shares).
 Profit Maximization
OR
Objectives of Shareholder’s Wealth
Financial Maximization
Management
OR
Stakeholder’s Wealth
Maximization
 RISK RETURN TRADE OFF
Capital Budgeting
Decisions
Return

Capital Structure
Decisions
Market Value of
the Firm

Dividend
Decisions
Risk

Working Capital
Decisions
If the organizations can Agency Theory
have good corporate
governance policies, the
agency problems can be
minimized significantly.
 Thanks!

Questions, please!