Chapter 1

What Is Corporate Finance

Presentation by: Mohamed El-Masri Twitter: @Moe_Elmasri

Copyright 2014 - Volyoum Enterprise - www.volyoum.com

What is Finance?
To understand what Finance is, we need to be aware of the four types of people that exist in our economy

The economy is composed of four types of people:

1. People with no extra money and no ideas. 2. People with extra money but no ideas (or no time to implement any ideas) 3. People with ideas but not enough money. 4. People with both ideas and extra money.

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What is Finance?

Type 1 tends to be caught with 9 to 5 jobs and are living from paycheck to paycheck. However, some of them would be interested in jumping on new opportunities if they only had the time do so.

(continued)

Type 2 people are usually called "investors", these investors could be wealthy individuals, but usually they are venture capitalist, insurance companies or larger corporations who are looking for new ideas to finance and profit out of.

Type 3 are the type of people who have ideas but they do not have the means or the resources to implement such ideas. These Type 3 people go to Type 2 people to pitch their ideas, or the Type 2 go to Type 3 to buy their idea. However, usually large corporations hire investment seekers who are Research & Development officers (R&D) to research for new or existing opportunities. This is an interesting way of getting funded and staying away from bank loans. Usually private placements work best for these types of transactions.
There is not much to say about Type 4 people, because they are just too interesting to talk about.

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The primary cash flows of finance.

People with ideas but not enough money (Companies) People with money but no ideas/time (Investors)

Projects

Coupon payments, Dividends & Stock repurchases

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The complete cash flows of Finance.

People with ideas but not enough money (Companies) People with money but no ideas/time (Investors) Retained earnings
Coupon payments, Dividends & Stock repurchases

Projects

Taxes
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The Subfields of Finance

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The study of investments

People with ideas but not enough money (Companies) People with money but no ideas/time (Investors) Investments

Investors have to decide which company or companies to invest in, what form that investment will take and in what manner they wish to be repaid. Looking at these decisions from this perspective is called the study of investments.

Projects

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Corporate Finance (Financial Management)

Companies face decisions concerning how to raise capital, what projects to invest in, and how to go about paying investors back. Looking at these decisions from their perspective is called Corporate Finance or Financial Management. Companies hire corporate finance officers or Investment Banking firm to consult them in these decisions. People with ideas but not enough money (Companies) People with money but no ideas/time (Investors) Corporate Finance Or Financial Management

Projects

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Financial Institutions and market

People with ideas but not enough money (Companies) People with money but no ideas/time (Investors)

This is another perspective, where as we stated earlier, the companies outsource this role to Financial Institutions (Investment Banking firms) which exist for the sole purpose of facilitating this flow of funds between investors and the companies.

Financial Institutions and Markets.

Projects

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International Finance
Companies
The final subtopic of finance is one that considers the entire system of cash flows, but in a setting where the investors, companies, and/or projects involved are in different countries.

Investors

Projects

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The Parts of Corporate Finance

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Major decisions of Corporate Finance.

Corporate Finance

Companies
What are we going to do with the money when weve got it?

How are we going to raise the money?

Investors

Retained earnings
Coupon payments, Dividends & Stock repurchases

Projects

How do we go about paying it back?

Taxes
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Formal names of corporate finance decisions.

Corporate Finance

Companies
What are we going to do with the money when weve got it?

How are we going to raise the money?

Investors

Retained earnings
Coupon payments, Dividends & Stock repurchases

Projects

How do we go about paying it back?

Taxes
Copyright 2014 - Volyoum Enterprise - www.volyoum.com

So, Why Is This So Complicated

The story underlying the system of cash flows is a little more complicated than weve made it sound so far. In particular investors know exactly how much theyre going to pay for a stock or a bond in a company, but they dont know how much theyre going to get back or when they will receive it.

Companies

Investors

Retained earnings Uncertain $ Tomorrow

Projects

Taxes
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Why is Corporate Finance important?

In the financial markets where financial assets trade, what you get is (on average, and taking compensation for risk into account) exactly equal to what you paid for it.

The reason Corporate Finance important is because the area of corporate finance deals with nonfinancial assets, assets that trade in physical markets and that have properties of uniqueness that result in potential monopoly power. The goal in corporate finance is not to break even, but to ensure that what you get is (on average, and taking compensation for risk into account) equal to MOE THAN what you paid for it.

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Reference:
Adair, Troy A. (2011). Corporate Finance Demystified. 2nd edition. McGraw-Hill Companies, Inc.

Copyright 2014 - Volyoum Enterprise - www.volyoum.com

Mohamed EL-Masri - Founder & CEO of Volyoum Enterprise

& Corporate Finance Officer at The Investor for Securities

The Volyoum experience is meant to inspire success and a sophisticated entrepreneurial vocation

A motivated and determined individual who has acquired the discipline and desire to inspire others to lead & succeed. He has studied Political Science & Economics at Concordia University in Montreal, Canada. While living in Canada he also earned his qualification as a Certified Investment Consultant from the Canadian Securities Institute (Moodys Analytics Training & Certification) which gave him a professional ability to deal in the Canadian securities market. After moving to Riyadh, Saudi Arabia he also earned his qualification with the Capital Market Authority in Saudi Arabia by obtaining the CME-1 certification from The Institute of Banking in order to conduct Investment Banking & Securities Business in the Kingdom of Saudi Arabia. With his comprehensive understanding in Investment Funds, Portfolio management and corporate finance he started working at The Investor For Securities in early 2014, a fully authorized Investment Banking firm operating in the Kingdom. Mohamed is currently enrolled at the Southern New Hampshire University, earning his Bachelors of Science Degree in Social Entrepreneurship online. He is also the Founder & CEO of Volyoum Enterprise, an online website specializing in coaching & consulting as well as Research & Analysis to strengthen and enhance the competence and standards of young Entrepreneurs who are committed to serving the commonwealth and encouraging social and economic awareness.
Copyright 2014 - Volyoum Enterprise - www.volyoum.com