CORPORATE FINANCE COURSE OUTLINE SEMESTER VII INTRODUCTION TO THE COURSE: Corporate Finance is concerned with the financing and investment decisions made by the management of companies in pursuit of corporate goals. This subject is concerned to the study of how the companies actually make financing and investment decisions, and it s is often the case that theory and practice disagree. In Corporate Finance, the fundamental goal is usually taken to be to increase the wealth of shareholders. Corporate finance gives an understanding of the reasons why shareholder wealth maximization is the primary financial objective of a company, rather than other objectives a company may consider. The object of the Corporate Finance is the acquisition and allocation of corporate funds or resources with the maximizing shareholders wealth. In the financial management of a corporation funds are generated from various sources and allocated or invested for desired assets. The primary function of corporate finance is resource acquisition, refers to the generation of funds from both internal and external sources at the lowest possible cost to the corporation. There are two main categories of resources are equity (shares) and liability (Borrowings). The equities are proceeds from the sale of stock, returns from investments and retained earnings. Liabilities include bank loans or other debts, accounts payable, product warranties and other types of commitments from which an entity derives value. The second function of corporate finance is resources allocation and investment of funds with the intent of increasing share holders wealth over a period of time. There are two basic categories investments are current assets and fixed assets. Current assets include cash, inventory and accounts receivable. The fixed assets are buildings, real estate and machinery. In addition, the resource allocation function is concerned with intangible assets such as goodwill, patents and brand names. It is the duty of financial manager of a corporation to conduct the above functions in a manner that maximizes shareholders wealth or stock price and he must balance the interests of owners or shareholders and creditors including banks and bondholders and other parties, such as employees, suppliers and customers. For example a corporation may choose to invest its resources in risky
ventures in an effort to offer its share holders the potential for large profit. However, risky investments may reduce the perceived security of the companies bond, thus decreasing their value in the firm must pay to borrow money in the future. Conversely, if the corporation invests too conservatively, it could fail to maximize the value of its equity. If the firm performs better than other companies its stock price will rise, in theory, enabling it to raise additional funds at a labour cost, among other benefits. Practical issues and factors influenced by corporate finance include employee s salaries, marketing strategies customer credit and the purchase of new equipment. The Financial decision affects both the profitability and risk of a firm s operation. An increase in cash holdings, for instance risk, but, because of cash is not an earning asset, converting other types of assets to cash reduces the other firm s profitability. Similarly, the issue of additional debt can raise the profitability of a firm, but more debt means more risk. Striking a balance between risk and profitability that will maintain the long term value of a firm s securities in the large of finance. This course is divided into Seven Modules. MODULE 1. INTRODUCTION 1. Basics Of Corporate Law 2. Meaning, Importance and Scope of Corporate Finance. MODULE 2. CORPORATE FINANCE 1. Concepts of Corporate Finance: Relationship between Risk and Return Time Value Of Money 2. Objectives of Corporate Finance Profit Maximisation Wealth Maximisation 3. Various instruments for raising finance 4. Capital Investment: Needs and Factors effecting Capital Investment
MODULE 3. CAPITAL BUDGETING 1. Principles of Capital Budgeting 2. Capital Budgeting : Meaning, Importance and Types 3. Capital Budgeting Process / Steps involved 4. Role of a Financial Manager MODULE 4. EQUITY FINANCE 1. Share Capital 2. Public Issue a) Initial Public Offer (IPO) b) Further Public Offer (FPO) 3. Rights Issue 4. Bonus Issue 5. Prospectus Information and Disclosure Requirements MODULE 5. DEBT FINANCE 1. Debentures - Nature, Issue and Class 2. Deposit and acceptance 3. Creation of charge, fixed and floating charges MODULE 6. INTERMEDIARIES 1. Credit Rating Agencies 2. Merchant Bankers 3. Registrars and Share Transfer Agents 4. Underwriters 5. Debenture Trustees 6. Bankers to an Issue 7. Stock Brokers, Sub-brokers 8. Portfolio Managers Guidelines for Primary Issue ICDR 2009 Regulations to be referred: 1. SEBI (Merchant Bankers) Regulations, 1992
2. SEBI (Credit Rating Agencies) Regulations, 1999 3. SEBI (Portfolio Managers) Regulations, 1993 4. SEBI (Stock Brokers and Sub-brokers) Regulations 1992 5. SEBI (Underwriters) Regulations 1993 6. SEBI (Bankers to an Issue) Regulations, 1994 7. SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 19 8. SEBI (Intermediaries) Regulations, 2008 9. The SEBI (Debenture Trustees) Regulations, 1993 10. SEBI (Public Issue and Listing of Securitized Debt Instruments) Regulations, 2008 11. SEBI (Issue and Listing of Debt Securities) Regulations, 2008 12. ICDR Regulations 2009 MODULE 7. CORPORATE FUND RAISING 1. Depositories - Indian Depository receipts (IDR); American Depository Receipts (ADR); Global Depository receipts (GDR) 3. Public Finance institution - IDBI, IFC and SFC. 4. Mutual Fund and other collective investment schemes, 5. Venture Cap funds 6. Institutional investments - LIC, UTI and Banks BIBLIOGRAPHY 1. Altman and Subramanian, Recent Advances in Corporate Finance (1985) LBC. 2. Alastair Hundson, The Law on Financial Derivatives (1998), Sweet & Maxwell. 3. Babby Dutta, Indian Financial Markets the regulations framework, ICFAI-2005. 4. Board of Editors, Financial Strategy Conceptual Issue, ICFAI, 2006. 5. Denzil Watson and Andhonyhead, Corporate Finance Principles and Practice, P.S. Arson Education Ltd.(2007). 6. Diana R. Harrington-Corporate Financial Analysis-(2008). 7. Donald H. Chew, Studies in International Corporate Financial System, Oxford (1997). 8. Eil s Feran, Company Law and Corporate finance, (1999) Oxford. 9. Frank.B. Cross & Robert A. Prentice- Law and Corporate Finance, Edward Elgar Publishing Limited-U.K (2007). 10. H.L.J. Ford and A.P.Austen, Fords Principles of Corporations Law, (1999) Butterworths 11. Jonathan Charkham, Fair Share: The Future of Shareholders Power and Responsibility, Oxford.
12. J.H. Farrar and B.M. Hanniyan, Farrar s company Law, (1998) LBC, Maryin M.Kristein, Corporate finance (1975). 14. Philip R. Wood, Law and Practice of International Finance-Regulation of International Finance, Sweet-Maxwell (2007). 15. Ramaiya, A Guide to The Companies Act, (1998) Vol.I.II.III. 16. S.D.Israni, Handbook on Private Companies, Snow White.