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hello everyone welcome to business
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school 101 today we're diving into a
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fundamental course in any business
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school Corporate Finance whether you're
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managing a small business overseeing a
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multinational corporation or tracking
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the stock market Corporate Finance plays
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a critical role in every financial
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decision a company makes in this video
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as an introduction to the course we'll
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explore what Corporate Finance is the
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major areas it covers and why it is
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essential for businesses of all sizes
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and industries
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section one what is Corporate Finance
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let's begin with the basics Corporate
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Finance deals with how businesses manage
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their financial activities it focuses on
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making key financial decisions to
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maximize the value of the company for
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its shareholders simply put Corporate
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Finance is about managing money in a way
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that benefits both the company and its
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stakeholders section two three main
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areas in General Corporate Finance
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covers following three main areas first
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investment decisions which refers where
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should the company allocate its
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resources for the best return second
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financing decisions which refers how
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should the company Finance its
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operations through debt Equity or a mix
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of both third working Capital Management
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which refers how can the company manage
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its short-term assets and liabilities
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efficiently to ensure smooth operations
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these decisions require careful planning
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and Analysis to maximize shareholder
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value while minimizing risks let's
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discuss them individually
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number one investment decisions one of
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the primary roles of corporate finance
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is making investment decisions this is
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also known as capital budgeting it's the
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process of deciding which projects or
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investments will generate the highest
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returns for the company in the future
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companies must evaluate these potential
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projects carefully to determine which
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ones are worth pursuing to make better
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investment decisions the following
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analysis are often applied number one
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Net Present Value npv it evaluates
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whether a project will add value by
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comparing the present value of cash
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inflows with the initial investment
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number two internal rate of return irr
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it measures the expected profitability
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of an investment number three payback
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period it estimates how long it will
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take for an investment to repay its
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initial cost for example imagine a small
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bakery owner considering investing in a
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new oven to increase production using
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Capital budgeting tools like npv and irr
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the owner can determine if the upfront
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cost will be offset by Future sales
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growth if the oven boosts production to
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meet demand and increase profits the
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investment would be worthwhile the owner
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would also evaluate the payback period
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to see how quickly the cost can be
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recovered supporting the bakery's growth
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and
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competitiveness number two financing
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decisions after a company decides to
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invest in a project the next step is to
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determine how to finance that investment
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this involves making decisions about the
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company's capital structure the mix of
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debt and Equity the goal is to find the
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right balance that minim minimizes the
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cost of capital while maximizing
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shareholder returns Option One debt
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financing it refers borrowing funds
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through loans or bonds debt can be
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cheaper than Equity because of tax
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benefits interest is tax deductible but
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it increases the company's Financial
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Risk option two Equity financing it
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refers raising money by selling shares
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of the company while this doesn't
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require repayment it dilutes ownership
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which can be a concern for current
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shareholders for example a midsize toy
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manufacturing company plans to expand
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its production line and needs to raise
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Capital it can either take a loan
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benefiting from low interest rates and
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tax deductions but increasing debt risk
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or issue shares which raises funds
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without debt but dilutes ownership the
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decision between debt and Equity
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financing is often influenced by market
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conditions the company's Financial
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Health and the risk tolerance of its
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managers number three working Capital
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Management corporate finance isn't just
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about Investments or raising Capital it
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also involves managing the day-to-day
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finances of the business this is where
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working Capital management comes into
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play working capital refers to the
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short-term assets and liabilities of a
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company such as cash inventory and
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accounts receivable the goal of it is to
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ensure that the company has enough
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liquidity to meet its short-term
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obligations such as paying suppliers
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employees and other operational expenses
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without holding excessive amounts of
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cash or inventory that could be better
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invested elsewhere the working Capital
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Management normally include following
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components number one cash management it
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refers ensuring the company has enough
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cash on hand to meet daily expenses
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while minimizing idle cash that could be
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invested number two Inventory management
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it refers keeping inventory levels
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optimized too much inventory ties up
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Capital but too little can lead to
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stockouts number three accounts
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receivable and payable management it
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refers ensuring customers pay on time
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and negotiating favorable terms with
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suppliers for example imagine a grocery
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store Store where the owner manages cash
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for daily expenses like restocking
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shelves and paying employees they must
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optimize inventory to meet customer
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demand without overstocking or waste and
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negotiate good payment terms with
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suppliers while ensuring customers pay
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on time effective working Capital
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Management ensures the store stays both
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liquid and
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profitable section three why Corporate
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Finance matters Corporate Finance is
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crucial for businesses of all sizes and
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industries for the following reasons
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number one maximizing shareholder value
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the ultimate goal of corporate finance
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is to create value for shareholders this
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involves making sound Investments
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maintaining an optimal capital structure
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and ensuring efficient day-to-day
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operations number two managing risk
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Corporate Finance helps businesses
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evaluate and mitigate Financial risks
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whether it's interest rate risk credit
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risk or operational risk effective
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Corporate Finance practices allow
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companies to navigate uncertainties and
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remain profitable number three insur
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uring liquidity working Capital
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Management ensures that the company can
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pay its bills and meet obligations
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preventing financial distress and
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ensuring smooth operations for example
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after the 2008 financial crisis general
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electric GE faced serious challenges due
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to its excessive debt to stabilize GE
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made significant Corporate Finance
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decisions including selling off key
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assets such as NBC Universal and
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portions of GE Capital raising billions
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to reduce debt the company also
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implemented cost cutting measures
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streamlined operations and reduced its
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dividend to preserve cash these actions
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allow GE to strengthen its balance sheet
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refocus on core businesses like Aviation
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and Healthcare and ultimately improve
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its Financial Health for the long
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term section four conclusion in summary
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Corporate Finance is at the heart of
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every successful business from making
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Strategic investment decisions to
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managing the day-to-day finances
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Corporate Finance ensures that a company
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can grow sustainably while managing it
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risks and maximizing value for
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shareholders it's a complex but vital
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area that requires balancing long-term
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goals with short-term needs that wraps
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up today's lesson on Corporate Finance
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if you found this video helpful don't
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forget to like subscribe and leave your
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comments below thanks for watching and
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I'll see you next time
