WHATISCORPORATEFINANCE?

Everydecisionthatabusinessmakeshasnancialimplications,andanydecisionwhichaects
thenancesofabusinessisacorporatenancedecision.
Denedbroadly,everythingthatabusinessdoestsundertherubricofcorporatenance.
Intraditionalcorporatefinance,theobjectiveindecisionmakingistomaximizethevalueofthefirm.
Anarrowerobjectiveistomaximizestockholderwealth.Whenthestockistradedandmarketsare
viewedtobeefficient,theobjectiveistomaximizethestockprice.
Thedefinitionofcorporatefinancevariesconsiderablyacrosstheworld.IntheUS,forexample,it
isusedinamuchbroaderwaythanintheUKtodescribeactivities,decisionsandtechniques
thatdealwithmanyaspectsofacompanysfinancesandcapital.
IntheUK,thetermscorporatefinanceandcorporatefinanciertendtobeassociatedwith
transactionsinwhichcapitalisraisedinordertocreate,develop,groworacquirebusinesses
TheFirm:StructuralSetUp
Incorporatefinance,wewillusefirmgenericallytorefertoanybusiness,largeorsmall,manufacturingor
service,privateorpublic.Thus,acornergrocerystoreandMicrosoftarebothfirms.Thefirmsinvestments
aregenericallytermedassets.Althoughassetsareoftencategorizedbyaccountantsintofixedassets,
whicharelonglived,andcurrentassets,whichareshortterm,wepreferadifferentcategorization.The
assetsthatthefirmhasalreadyinvestedinarecalledassetsinplace,whereasthoseassetsthatthefirm
isexpectedtoinvestinthefuturearecalledgrowthassets.Thoughitmayseemstrangethatafirmcanget
valuefrominvestmentsithasnotmadeyet,highgrowthfirmsgetthebulkoftheirvaluefromthese
yettobemadeinvestments.Tofinancetheseassets,thefirmcanraisemoneyfromtwosources.Itcan
raisefundsfrominvestorsorfinancialinstitutionsbypromisinginvestorsafixedclaim(interestpayments)on
thecashflowsgeneratedbytheassets,withalimitedornoroleinthedaytodayrunningofthebusiness.
Wecategorizethistypeoffinancingtobedebt.Alternatively,itcanofferaresidualclaimonthecashflows
(i.e.,investorscangetwhatisleftoveraftertheinterestpaymentshavebeenmade)andamuchgreaterrole
intheoperationofthebusiness.Wecallthisequity.Notethatthesedefinitionsaregeneralenoughtocover
bothprivatefirms,wheredebtmaytaketheformofbankloansandequityistheownersownmoney,as
wellaspubliclytradedcompanies,wherethefirmmayissuebonds(toraisedebt)andcommonstock(to
raiseequity).

SomeFundamentalPropositionsaboutCorporateFinance
1.Corporatefinancehasaninternalconsistencythatflowsfromitschoiceofmaximizingfirmvalueas
theonlyobjectivefunctionanditsdependenceonafewbedrockprinciples:Riskhastoberewarded,cash
flowsmattermorethanaccountingincome,marketsarenoteasilyfooled,andeverydecisionafirmmakes
hasaneffectonitsvalue.

2.Corporatefinancemustbeviewedasanintegratedwhole,ratherthanacollectionofdecisions.
Investmentdecisionsgenerallyaffectfinancingdecisionsandviceversafinancingdecisionsofteninfluence
dividenddecisionsandviceversa.Althoughtherearecircumstancesunderwhichthesedecisionsmaybe
independentofeachother,thisisseldomthecaseinpractice.Accordingly,itisunlikelythatfirmsthatdeal
withtheirproblemsonapiecemealbasiswilleverresolvetheseproblems.Forinstance,afirmthattakes
poorinvestmentsmaysoonfinditselfwithadividendproblem(withinsufficientfundstopaydividends)anda
financingproblem(becausethedropinearningsmaymakeitdifficultforthemtomeetinterestexpenses).

3.Corporatefinancematterstoeverybody.Thereisacorporatefinancialaspecttoalmosteverydecision
madebyabusinessthoughnoteveryonewillfindauseforallthecomponentsofcorporatefinance,
everyonewillfindauseforatleastsomepartofit.Marketingmanagers,corporatestrategists,human
resourcemanagers,andinformationtechnologymanagersallmakecorporatefinancedecisionseveryday
andoftendontrealizeit.Anunderstandingofcorporatefinancewillhelpthemmakebetterdecisions.

4.Corporatefinanceisfun.Thismayseemtobethetallestclaimofall.Afterall,mostpeopleassociate
corporatefinancewithnumbers,accountingstatements,andhardheadedanalyses.Althoughcorporate
financeisquantitativeinitsfocus,thereisasignificantcomponentofcreativethinkinginvolvedincomingup
withsolutionstothefinancialproblemsbusinessesdoencounter.Itisnocoincidencethatfinancialmarkets
remainbreedinggroundsforinnovationandchange.

5.Thebestwaytolearncorporatefinanceisbyapplyingitsmodelsandtheoriestorealworld
problems.Althoughthetheorythathasbeendevelopedoverthepastfewdecadesisimpressive,the
ultimatetestofanytheoryisapplication.Aswewillargue,much(ifnotall)ofthetheorycanbeappliedto
realcompaniesandnotjusttoabstractexamples,thoughwehavetocompromiseandmakeassumptions
intheprocess.

WHOARETHEVARIOUSPLAYERSINCORPORATEFINANCE?

WHATISTHEROLEOFACORPORATEFINANCELAWYER?
Solicitorswhoareprimarilyinvolvedinadvisingonthetypesoftransactionincludinglegaldue
diligence.
InPhilippines,thereexistcountlesslawsthatgovernthefunctioningofanykindofbusiness
establishment.Thecorporatefinancelawyermusthaveagoodunderstandingoftheselaws.Quite
often,economicexpertsclassifytheselawsintotwotheonesthatprotecttheinterestsofthe
corporationandtheonesthattakecareoftheclients(servedbythecompany).Alongwith
comprehendingthelaws,theattorneymustbehavingamplelevelsofexpertiseandexperienceto
tackleanyformoffinancialadversity.Attheendoftheday,thecorporatefinancelawyerhastosee
toitthatthemanagementishappywiththeperformanceandtheoperationalmannersofthe
establishment.
The role of a corporate finance law attorney cannot be sidelined in the corporate world today. This
man of law is equipped to hand le the intricacies of corporate finance law that could take a toll on
your business health if not taken care of in time and in the right manner. As a corporate entity or a
shareholder you need to comply with the corporate law from time to time. The need also arises as
youbuyandsellagreementsandaddressthenuancesofcapitalization.
The corporate finance law attorney is now accessible online and offline to offer suggestions and
guidance in return for a small and very negligible fee. Their answers to queries and timely help
enable you to rest assured that the business is in safe hands. With the productive legal results you
actually gain the guarantee that the company's future growth is secured. It is not easy to battle
commercial law on your own. The legal assistance given by the corporate finance law attorney is
effectiveandcoversallcorporatetransactions.
A corporate finance lawyer's job is mainly about guiding a company into making profits with the
primary task of keeping the company's actions within the boundary of the law. A corporate lawyer
may also seek State legislation for a desired act by the company which is seeking to make profit or
a move by executing the act. Although not so much inside the courtroom, a corporate lawyer's job
can be tedious, lengthy and demanding. Corporate lawyers are hired by firms maximize their profits
withintheconstraintsoflaw.
WHENMAYACOMPANYNEEDTOSEEKFINANCING?
Mostbusinessesseekfinancetoimprovecashfloworreplacemachineryorequipmentofsome
kind.Whiletherearemanyotherreasonswhyahealthybusinesswillseekfinance,forsomeitmay
flagunderlyingfinancialproblems.Beforeyouseekfinance,carefullyconsiderthefollowing
questionswithaqualifiedaccountantorbusinessadvisor:
Whatdoesyourbusinessneed?
Whyareyouseekingfinance?
Shouldyoubeseekingfinance?
Whatfinanceoptionsareavailable?
Whichfinanceoptionsarebestsuitedtoyoursituation?
Doyouhavetheabilitytorepaythefinance?
Businessownerswhoseekfinancingfaceafundamentalchoice:shouldtheyborrowfundsortakein
newequitycapital?Sincedebtandequityhaveverydifferentcharacteristics,eachhasadifferent
impactonearnings,cashflow,balancesheetpresentation,andtaxes.Eachalsohasdifferent
effectonaCompanysleverage,dilution,andahostofothermetricsbywhichbusinessesare
measured.Finally,eachfinancingoptionbringsadifferenttypeofrelationshipwiththerespective
financingsource.TheCompanysplanneduseoffunds,desiredrelationshipwiththecapitalsource,
andtype/stageofthecompanywilllargelydeterminetheoptimalformoffinancingforagiven
situation.

WHATDOYOUMEANBYMARKETCONDITIONS?
Characteristicofamarketintowhichafirmisenteringorintowhichanewproductwillbe
introduced,suchasnumberofthecompetitors,levelorintensityofcompetitiveness,andthe
market'sgrowthrate.
Thesearecharacteristicsofanindustrysector,e.g,retail,whichcanaffectbuyersandsellersin
thatsector.Factorstoconsiderinclude,forexample,thenumberofcompetitorsinthesector,if
thereisasurplusthennewcompaniesmayfinditdifficulttoenterthemarketandremainin
business.

WHATISSOUNDFINANCIALMANAGEMENT?
Itmeanstheaggregatesetofpracticesandprocedureswhichallowfortheaccurate,transparent,
andeffectivehandlingofallgovernmentmoniesandgovernmentcontracts.
Asoundpublicfinancialmanagementsystemhelpsgovernmentdecisionmakersbothoversight
agenciesandspendingagenciesinperformingtheirfunctionsdotheirjobseffectively,efficiently
andeconomically.Ithelpsthemtochannelfundstowheretheyareintendedandwilldothe
greatestgoodandsendsoffsignalswhendeviationsoccur.Mostimportantly,ithelpstoinform
citizenswherepublicfundsareactuallybeingspent

WHATARETHEDIFFERENTREGULATORYMEASURES
INVOLVINGCORPORATEFINANCEINTHEPHILIPPINES?
FinancingCompanyActof1998
FinanceRelatedRegulations