FIN 201: Introduction to Corporate Finance (01) - Study Notes

Corporate finance focuses on creating value and maximizing shareholder wealth through strategic investment, financing, and treasury management decisions. It encompasses diverse areas like international investing, risk management, and security valuation. Key topics include:

  1. Business Structures:

    • Sole Trader: One owner.

    • Partnership: Two or more owners.

    • Company (Corporation): Separate legal entity with limited liability for shareholders.

  2. Agency Issues:

    • Occur due to the separation of ownership (principals/shareholders) and control (agents/managers).

    • Financial managers aim to maximize shareholder wealth.

    • Issues are mitigated through monitoring and performance-linked compensation.

  3. Financial Markets:

    • Categorized into Money Markets (short-term) and Capital Markets (long-term, e.g., Stock and Bond markets).

    • Primary Markets: Companies issue new shares/bonds to raise capital.

    • Secondary Markets: Investors trade existing securities; provides liquidity, indirectly benefiting companies.

    • Banks facilitate finance: Commercial banks (indirect, on balance sheet) and Investment banks (direct, introduce parties).

  4. Financial Accounting:

    • Involves key statements: Balance Sheet, Income Statement, Cash Flow Statement.

    • Financial ratios (profitability, liquidity, efficiency, leverage) are used for analysis and comparison.