Corporate Finance: Creating Value and Management Functions

• A publicly traded corporation aims to create value for the company.
• Poor financial decisions lead to a decrease in stock price.
• Good financial decisions lead to an increase in stock price.
• Accounting profit equals revenue minus expenses.
• Cash flow is essential for business expansion.
• Money is worth more today than in the future (time value of money).
• Opportunity cost arises from the inability to pursue multiple options simultaneously.
• Return should be greater than risk.
• Stock represents a certificate of ownership in a publicly traded corporation.
• Two ways a publicly traded corporation raises financial capital are through corporate bonds and issuing common/preferred stock.

Functions of Management

• Planning involves setting goals and strategies.
• Organizing entails structuring resources and activities.
• Leading involves influencing and motivating others.
• Controlling involves monitoring and correcting performance.
• Ethics is doing what is morally right, not wrong.

Topics Addressed in Finance

• Finance addresses long-term investment decisions.
• It covers raising financial capital for investments.
• Finance involves managing day-to-day operational cash flow.

Marketing Mix

• Product: What is being offered to customers
• Price: How much the product costs
• Place: Where the product is sold
• Promotion: How the product is advertised
• The CEO (Chief Executive Officer) is the highest-ranking executive.
• The CFO (Chief Financial Officer) manages financial risks.
• The CIO (Chief Investment Officer) oversees investments.
• The COO (Chief Operations Officer) directs operations.

Responsibilities of Treasurer

• Cash management
• Credit management
• Capital expenditures
• Financial planning

Forms of Business Organization

• Sole Proprietorship: owned and run by one person
• Partnership: owned and run by two or more people
• Corporation: chartered by the state with shareholders
• Corporations face double taxation.
• A dividend is a cash distribution to shareholders from a corporation.

Financial Statements

• Income statements
• Balance sheets
• Statement of retained earnings
• Statement of cash flows
• S-Corps possess corporate characteristics, have fewer than 100 people, don't issue dividends, and are taxed like a partnership.
• Multinational corporations operate in the U.S. and overseas (e.g., Pepsi, Apple, Tesla).
• Financial ratios are used to analyze a firm's financial state.

Use of Financial Ratios

• Identify performance deficiencies & implement corrective actions.
• Evaluate employee performance & determine incentive compensation.
• Compare financial performance across different divisions.
• Liquidity measures a firm's ability to convert receivables and inventory to cash.
• The current ratio is current assets divided by current liabilities.
• Excellent: current ratio > 1
• Fair: current ratio = 1
• Poor: current ratio < 1
• Quick ratio/Acid Test ratio: (cash + accounts receivable) / current liabilities.
• Lenders, credit-rating agencies, investors, and major suppliers use financial ratios.
• Credit rating agencies include S+P 500, Moody's, and Fitch.
• Trailing and Forward are the 2 P/E ratios.

Ways to Transfer Capital

• Direct transfer
• Indirect transfer via investment banker
• Indirect transfer via financial intermediary
• IPO (Initial Public Offering): A corporation's first public stock offering.

Primary and Secondary Markets

• Primary: Securities sold to initial buyers.
• Secondary: Trading of previously issued securities.
• Money market: short-term investments
• Capital market: long-term financial securities
• A spot market involves immediate transactions.
• NYSE (New York Stock Exchange) is the world's largest stock exchange.
• OTC (Over the Counter markets) is a decentralized market.

Benefits of Stock Exchange

• Provides continuous market.
• Establishes and publicizes fair security prices.
• Helps businesses raise new capital.
• Investment Bankers/Underwriters act as intermediaries in the sale of securities, buying and reselling to the public.
• The Sarbanes-Oxley Act (SOX) holds senior corporate advisors accountable for misconduct.
• Nominal interest rate is the stated rate without adjusting for inflation.
• Real interest rate is the nominal rate adjusted for inflation.
• Standard deviation measures dispersion around the mean rate of return.
• Opportunity cost is the value of the most desirable alternative given up in a decision.

Explore how corporate finance decisions impact company value, focusing on accounting profit, cash flow, and the time value of money. Understand the functions of management: planning, organizing, leading, and controlling, along with the importance of ethical practices.