CORPORATE

FINANCE
BA8014 REGULATION - 2013
OVERVIEW
UNIT TITLE
UNIT I (9) INDUSTRIAL FINANCE
UNIT II (6) SHORT TERM WORKING CAPITAL
FINANCE
UNIT III (12) ADVANCED FINANCIAL
MANAGEMENT
UNIT IV(10) FINANCING DECISION
UNIT V(8) CORPORATE GOVERNANCE
UNIT I INDUSTRIAL FINANCE
(9 Hours)
(1) Indian Capital Market
(2) Basic problem of Industrial Finance in India.
(3) Equity , Debenture financing
(4) Guidelines from SEBI, advantages and disadvantages and
cost of various sources of finance
(5) Finance from international sources, financing of exports
(6) Role of EXIM bank and commercial banks.
(7) Finance for rehabilitation of sick units
UNIT II SHORT TERM
WORKING CAPITAL FINANCE (6
Hours)
Estimating working capital requirements
Approach adopted by Commercial banks,
Commercial paper
Public deposits and inter corporate investments.
UNIT III ADVANCED
FINANCIAL MANAGEMENT
(12Hours)
Appraisal of Risky Investments, certainty equivalent of cash
flows and risk adjusted discount rate,
Risk analysis in the context of DCF methods using
Probability information
Nature of cash flows,
Sensitivity analysis;
Simulation and
Investment decision,
Decision tree approach in investment decisions.
UNIT IV FINANCING
DECISION
(10 Hours)
Simulation and financing decision
Cash inadequacy and cash insolvency
Determining the probability of cash insolvency
Financing decision in the Context of option pricing model
and agency costs
Inter-dependence of investment
Financing and Dividend decisions.

UNIT V CORPORATE
GOVERNANCE (8 Hours)
Corporate Governance
SEBI Guidelines
Corporate Disasters and Ethics
Corporate Social Responsibility
Stakeholders and Ethics
Ethics, Managers and Professionalism.

TEXT BOOKS
Richard A.Brealey, Stewat C.Myers and Mohanthy,
Principles of Corporate Finance, Tata McGraw Hill, 9
th

Edition, 2011
I.M.Pandey, Financial Management, Vikas Publishing House
Pvt., Ltd., 12
th
Edition, 2012.

REFERENCES
Brigham and Ehrhardt, Corporate Finance - A focused Approach,
Cengage Learning, 2nd Edition, 2011.
M.Y Khan, Indian Financial System, Tata McGraw Hill, 6
th
Edition,
2011
Smart, Megginson, and Gitman, Corporate Finance, 2nd Edition,
2011.
Krishnamurthy and Viswanathan, Advanced Corporate Finance, PHI
Learning, 2011.
Website of SEBI

INTRODUCTION
It is the area of finance dealing with the sources of funding
and the capital structure of corporations and the actions that
managers take to increase the value of the firm to the
shareholders.
Primary goal is to increase the shareholders value.
WHAT IS CORPORATE
FINANCE?
Corporate Finance addresses the following three
questions:

1. What long-term investments should the firm engage in?
2. How can the firm raise the money for the required
investments?
3. How much short-term cash flow does a company need to pay
its bills?
THE BALANCE-SHEET MODEL
OF THE FIRM

Current Assets

Fixed Assets
1 Tangible
2 Intangible

Total Value of Assets:

Shareholders
Equity

Current Liabilities
Long-Term Debt

Total Firm Value to Investors:
THE BALANCE-SHEET MODEL
OF THE FIRM

Current Assets

Fixed Assets
1 Tangible
2 Intangible


Shareholders
Equity

Current Liabilities
Long-Term Debt

What long-
term
investments
should the
firm engage
in?
The Capital Budgeting Decision
THE BALANCE-SHEET MODEL
OF THE FIRM
How can the firm
raise the money
for the required
investments?
The Capital Structure Decision

Current Assets

Fixed Assets
1 Tangible
2 Intangible


Shareholders
Equity

Current Liabilities
Long-Term Debt

THE BALANCE-SHEET MODEL
OF THE FIRM
How much short-
term cash flow
does a company
need to pay its
bills?

The Net Working Capital Investment
Decision
Net
Working
Capital

Shareholders
Equity

Current Liabilities
Long-Term Debt


Current Assets

Fixed Assets
1 Tangible
2 Intangible

INTRODUCTION
The main concept of corporate finance are applicable to the
financial problems of all kinds of firms.
Outline of corporate finance:
Investment analysis
Maximizing shareholders value
Return on investment
INTRODUCTION
Investment analysis or capital budgeting is the allocation of firms
resources between competing opportunities which is one of the
main focus of capital budgeting.
The primary goal of financial management is to maximize or to
continually increase shareholder value.
Return on investment is the concept of an investment in some
resource or asset yielding an upward growth trend or
appreciation in value to the investor.
1. THE INDIAN CAPITAL
MARKET
The capital market in India is a market for securities, where
companies and governments can raise long term funds.
It is a market designed for the selling and buying of stocks and
bonds.
Stocks and bonds are the two major ways to generate capital
and long term funds.
Thus the bond market and stock markets is considered as
capital markets.
NATURE OF CAPITAL
MARKET
The nature of capital market is brought out by the
following facts:
It has two segments
It deals in long term securities
It performs trade off function
It helps in capital formation
It helps in creating liquidity
CAPITAL MARKET
New issues are
distributed to
the investors.
PRIMARY
MARKET
Existing
securities are
traded.
SECONDARY
MARKET

CAPITAL MARKET
The Indian Equity market and Indian debt markets do form
part of Indian capital market.
The Indian capital market depends mainly on monsoons,
global funds flowing into equities and the performance of
various companies.
It is dominated by two exchanges
BSE
NSE
BENCHMARK INDICES
BSE BOMBAY STOCK EXCHANGE - Sensex
NSE NATIONAL STOCK EXCHANGE Nifty
INDEX: A stock index or stock market index is a method of
measuring the value of a section of the stock market.
It is computed from the prices of selected stocks (typically
a weighted average).
It is a tool used by investors and financial managers to describe
the market, and to compare the return on specific investments.
BENCHMARK INDICES
BSE BOMBAY STOCK EXCHANGE Sensex (Sensitive Index)
Commonly traded 30 stocks on the BSE
BSE allocates weightage to different stocks that reflect their importance in the
stock markets.
NSE NATIONAL STOCK EXCHANGE Nifty (National Stock Exchange Fifty)
India Index Services and Products Ltd, (IISL) owns Nifty.
IISL is a joint venture of NSE and CRISIL
CRISIL is a subsidiary of Standard and Poor (S&P)
And so NIFTY is also called as S&P CNX Nifty



MARKET CAPITALISATION
Market capitalization refers to the value of a companys
outstanding shares.
Outstanding shares Number of shares issued by the company
and subscribed by the public.
Market Capitalization = Current market price of stock

Shares outstanding
MARKET CAPITALISATION
Lets assume company ABC has 50,00,000 shares outstanding and
the current share price is Rs. 50. Based on this information and
the formula above
The companys market capitalization is 50,00,000 50 =
25,00,00,000.
Free Float market It is defined as the value of shares readily
available in the market for public trading excluding the promoters
equity.

SENSEX CALCULATION
The formula for calculation SENSEX
Sum of free float market capital of 30 blue chip companies

Index Factor
Index factor = 100/market value in 1978-79
Where 100 is the index value in 1978-79
SENSEX CALCULATION
Example:
Assume the sensex has only two stocks namely SBI and Reliance. total shares in
SBI are 500 out of which 200 are held by govt. and only 300 are available for
public trading. reliance has 1000 shares out of which 500 are held by
promoters and 500 are available for trading.

assume price of SBI stock is rs.100 and reliance is rs.200.
then free floating market capital of these two companies,

(300*100+500*200)=30000+100000=130000

assume the market capital during the year 1978-79 was rs.25000

Then sensex =130000*100/25000=520.
PLAYERS OF INDIAN EQUITY
MARKET
Mutual funds
Financial Institutions
FII
Venture Capital Funds
Private Equity Funds
MEMBERS OF INDIAN CAPITAL
MARKET
The Industrial Financial Corporation of India (IFC).
The Industrial Credit and Investment Corporation of
India (ICICI).
The Refinance Corporation of India (RFC).
The State Financial Development Corporations (SFCs).
National Industrial Development Corporation (NIDC).
Unit Trust of India (UTI).
MEMBERS OF INDIAN CAPITAL
MARKET
The State Industrial Development Corporation (SIDCs).
National Small Industries Corporation (NSIC).
Industrial Development Bank of India (IDBI).
Life Insurance Corporation of India (LIC).
Nationalized Commercial Banks (NCBs)
Merchant Banking Institutions (MBIs).
National Industrial Reconstruction Corporation of India
(NIRC)
MEMBERS OF INDIAN CAPITAL
MARKET
These members are mainly financial institutions which
provide the liquidity that is needed to propel the
machinery of the Capital Market.
The financial power of the Capital Market is in their
hands. SEBI has the responsibility to oversee their
proper functioning.
SEBI- SECURITIES EXCHANGE
BOARD OF INDIA
It is the National regulatory body for the securities
market, set up under the Securities and Exchange
Board of India act 1992.
To protect the investors in securities and to promote
the development of, and to regulate the securities
market.
GENESIS
In 1988 the Securities and Exchange Board of India
(SEBI) was established by the Government of India
through an executive resolution, and was
subsequently upgraded as a fully autonomous body (a
statutory Board) in the year 1992 with the passing of
the Securities and Exchange Board of India Act (SEBI
Act) on 30th January 1992.
GENESIS
Effective regulation of the market, SEBI Act, 1992 was
enacted to establish SEBI with statutory powers for:
Protecting the interests of investors in securities,
Promoting the development of the securities market, and
Regulating the securities market.

CONSTITUTION OF SEBI
The Central Government has constituted a Board by the name of SEBI under
Section 3 of SEBI Act. The head office of SEBI is in Mumbai. SEBI may establish
offices at other places in India. SEBI consists of the following members,
namely:-
(a) a Chairman;
(b) two members from amongst the officials of the Ministry of the Central
Government dealing with Finance and administration of Companies Act, 1956;
(c) one member from amongst the officials of the Reserve Bank of India;
(d) five other members of whom at least three shall be whole time members to be
appointed by the Central Government.