Introduction to Corporate Finance

PART 1: INTROdUCTION

TABLE 1.3 CAREER OPPORTUNITIES IN MONEY MANAGEMENT

Position Primary activities

Securities analyst Prepares company-specific and industry-wide analyses and recommendations for various classes of publicly

traded securities (especially ordinary shares and bonds)

Portfolio management, sales Markets mutual fund shares to individual and/or institutional investors

Portfolio manager Selects financial assets for inclusion in portfolios designed to meet specific investment objectives (growth,

income, international, emerging market bonds)

Superannuation fund manager Manages assets held by a superannuation fund by diversifying them, allocating them to investment

managers and controlling administrative costs

Financial planner Provides budgeting, tax, borrowing, insurance, investment, retirement planning and estate planning advice

to individuals

Investment adviser Provides investment advice, performance evaluation and quantitative analysis services to both the money

management industry and wealthy (or ‘high net worth’) individual investors

You can establish a rewarding and satisfying finance career using the corporate finance concepts, tools

and practices covered in this text. In the next section, we answer the question: what basic concepts are

involved in the financial management of a company?

CONCEPT REVIEW QUESTIONS 1-1

1 Think of another company or product besides Apple’s iPhone 6, and note that company’s

connections between other functional areas and finance.

2 List and briefly describe five main career paths open to finance graduates.

1-2 CORPORATE FINANCE ESSENTIALS

In this section, we present several basic concepts involved in managing a company’s finances. We begin

with a discussion of the five basic corporate finance functions that managers perform, then describe debt

and equity – the two principal types of long-term funding used by business – and conclude with a brief

discussion of the role of financial intermediaries in corporate finance.

1-2a THE FIVE BASIC CORPORATE FINANCE FUNCTIONS

Although corporate finance is defined generally as the activities involved in managing cash (money) that

flows through a business, a more precise description notes that the practice of corporate finance involves

five basic functions: financing, financial management, capital budgeting, risk management and corporate

governance. Nearly every topic covered in this text focuses on one or more of these five functions.

Financing

The financing function involves raising capital to support a company’s operations and investment programs.

A key aspect of this activity, known as the capital structure decision, involves determining and maintaining

the mix of debt and equity securities that maximises the company’s overall market value. Businesses raise

money either externally, from creditors or shareholders, or internally, by retaining and reinvesting profits.

corporate finance
The activities involved in
managing cash (money) that
flows through a business

LO1.2

financing function
Raising capital to support a
company’s operations and
investment programs