General Introduction to
Corporate Finance
Revision 1
Revision 2
Revision 3
Subject Corporate Finance & Risk Management
Date @September 20, 2021
What is corporate finance about?
Damodaran (1997): Corporate finance covers any decisions made by firms
which have financial implications. Thus, there is a corporate financial aspect to
almost every action taken by a firm, no matter which functional area claims
responsibility for it
Investment decisions: How to spend money?
• Build a new plant
• Run a large-scale advertising campaign
• Carry out R&D for a new drug
Financing decisions: How to raise money?
• Borrow from a bank
• Use retained cash flows
• Sell additional shares of stock or issue bonds
Payout decisions: How much to transfer to shareholders?
• Reinvestment versus payout to shareholders
• Different payout options
All decisions have to be analyzed under the light of value maximization
Shareholders
Owners of the company,
Shareholders don’t directly own the firm’s real assets (e.g. plants)
They possess the firm’s real assets indirectly via financial assets
General Introduction to Corporate Finance 1
, (i.e. shares of the company)
Board of Directors
Board of directors appoints senior management of the firm
Board of directors is elected by the firm’s shareholders
Types of corporations
Public company
Shares traded on public markets (e.g. SIX)
Multiple market listings possible
Example: CS Group listed on SIX and NYSE
Private company
Shares not traded publicly
Examples: IKEA, AMAG
Why do companies stay private?
Privacy, stays in the family...
Advantages of corporations
• Liability of owners limited to invested funds
• Lifespan not tied to the owner (potentially infinite life)
• Ease of ownership transferal
• Ease of raising capital
Disadvantages
of Corporations
Corporations face the problem of double taxation
• Costs related to set-up and regulation (e.g. filing of reports)
• Issues associated with the separation of ownership and control
(agency problems)
Corporations in
Switzerland
Aktiengesellschaft (AG): Swiss equivalent to US corporations
(corp.) and public limited companies (plc) in the UK
Swiss corporate law is primarily set out in the Swiss Code of
Obligations (CO) (Obligationenrecht/OR)
Financial Managers: Roles & Responsibilities
General Introduction to Corporate Finance 2
, Financial Managers: Tasks and Responsibilities
3 top-level financial managers:
Chief financial officer (CFO)
Financial policy, corporate planning
Treasurer
Cash management, raising capital, banking relationships
Controller
Preparation of financial statements, accounting, taxes
Foundation of corporate finance
Firm value maximisation
Potential financial goals of a corporation?
Profit, risk, liquidity
Connections and problems with these goals?
More risk= more profit
More liquidity = less profit
General Introduction to Corporate Finance 3
, More liquidity =less risk
General Introduction to Corporate Finance 4
Corporate Finance
Revision 1
Revision 2
Revision 3
Subject Corporate Finance & Risk Management
Date @September 20, 2021
What is corporate finance about?
Damodaran (1997): Corporate finance covers any decisions made by firms
which have financial implications. Thus, there is a corporate financial aspect to
almost every action taken by a firm, no matter which functional area claims
responsibility for it
Investment decisions: How to spend money?
• Build a new plant
• Run a large-scale advertising campaign
• Carry out R&D for a new drug
Financing decisions: How to raise money?
• Borrow from a bank
• Use retained cash flows
• Sell additional shares of stock or issue bonds
Payout decisions: How much to transfer to shareholders?
• Reinvestment versus payout to shareholders
• Different payout options
All decisions have to be analyzed under the light of value maximization
Shareholders
Owners of the company,
Shareholders don’t directly own the firm’s real assets (e.g. plants)
They possess the firm’s real assets indirectly via financial assets
General Introduction to Corporate Finance 1
, (i.e. shares of the company)
Board of Directors
Board of directors appoints senior management of the firm
Board of directors is elected by the firm’s shareholders
Types of corporations
Public company
Shares traded on public markets (e.g. SIX)
Multiple market listings possible
Example: CS Group listed on SIX and NYSE
Private company
Shares not traded publicly
Examples: IKEA, AMAG
Why do companies stay private?
Privacy, stays in the family...
Advantages of corporations
• Liability of owners limited to invested funds
• Lifespan not tied to the owner (potentially infinite life)
• Ease of ownership transferal
• Ease of raising capital
Disadvantages
of Corporations
Corporations face the problem of double taxation
• Costs related to set-up and regulation (e.g. filing of reports)
• Issues associated with the separation of ownership and control
(agency problems)
Corporations in
Switzerland
Aktiengesellschaft (AG): Swiss equivalent to US corporations
(corp.) and public limited companies (plc) in the UK
Swiss corporate law is primarily set out in the Swiss Code of
Obligations (CO) (Obligationenrecht/OR)
Financial Managers: Roles & Responsibilities
General Introduction to Corporate Finance 2
, Financial Managers: Tasks and Responsibilities
3 top-level financial managers:
Chief financial officer (CFO)
Financial policy, corporate planning
Treasurer
Cash management, raising capital, banking relationships
Controller
Preparation of financial statements, accounting, taxes
Foundation of corporate finance
Firm value maximisation
Potential financial goals of a corporation?
Profit, risk, liquidity
Connections and problems with these goals?
More risk= more profit
More liquidity = less profit
General Introduction to Corporate Finance 3
, More liquidity =less risk
General Introduction to Corporate Finance 4
