Corporate Finance

- reward investors- reduce excess cash- defensive strategy against hostile takovers- improve financial rations (EPS)

- provision of business information to interested recipients for financial analysis and valuation purposes

Balance Sheet- snapshot of a firm’s assets, liabilities, and equity at a given point in time Income Statement- summary of the financial performance during the reporting period- based on “matching principle” Cash Flow Statement- summary of cash inflow & outflow during the reporting period

Owners- evaluate management- assess investment profitability Employees and managers- job security- remuneration based on financial performance Customers- warranty validity Prospective investors- valuation model parameters- assess potential investment profitability Financial institutions- assess creditworthiness- link loan conditions to development of financial ratios (covenants) Regulatory institutions- review regulatory compliance

CA + FA = CL + LTL + Equity

CA: expected to be consumed or converted into cash w/i 1 yrFA: expected lifetime > 1yr, acquired for operation not resale

CL: obligations due w/i 1 yrLTL: obligations not due w/i 1 yr

by nature: raw materials, salaries, d&aby function: COGS, SG&A, R&D => same EBIT, same NI

DirectCF = Cash inflow - Cash outflow IndirectCF = NI + Non-cash expenses - Non-cash income + Cash inflow not affecting NI - Cash outflow not affecting NI

Common- voting rights- residual claim to assets/profits- dividends can be paid Preferred- no voting rights- preferred claim to assets/profits- dividends typically guaranteed

Continued operations: business segments which are operated in the foreseeable futureDiscontinued operations: business segments which are shut down or sold (should be excluded for long-term financial planning and valuation purposes)

Non-recurring- one-time unpredictable event- not related to operations- unlikely to happen again Extraordinary- infrequent event- not related to ordinary operations- might happen again