This text is about a six-session-long lecture about the principles and advances in corporate finance. Two different professors taught about company valuation and taxation in general. Not only the transcript of the lecturers' speech, but also the board notes (captured in self-made pictures and tables) and some information from secondary literature / newspaper articles are included. It was composed for an upcoming exam for preparation purposes and, therefore, a summary of this content is added at the end. However, it is not only useful for exams, it also allows the reader to get a better knowledge about the basic principles ad theories of corporate finance.
Inhaltsverzeichnis (Table of Contents)
- Goals and Governance of the firm.
- Two main financial decisions are: Where to get the money from (fund raising) and where to invest in (investment).
- Three major company types.
- One Tier System vs. Two Tier System.
- Two-tier board.
- One-tier board.
- Shareholders vs. Stakeholders.
- International differences in company orientation.
- Duties of the financial managers.
- Valuation of Stocks.
- Distinguish the primary and secondary market.
- Importance of stock valuation.
- Valuate stocks by key ratios.
- Formulae for expected return and price determination.
- Cost of Equity Capital.
- Growth Potential // PV of growth opportunities PVGO.
- Conclusions.
- Valuing Businesses.
- First approach: Free Cash Flow FCF: Clean surplus, amount of capital can be paid out to investors.
- Second approach: Based on P/E ratios.
- Third approach: Based on Market-Book ratios.
- Fourth approach: Based on PVGO.
- Which approach to use?
- Source and Use of Funds.
- Internal fund raising (Retained Earnings) is most common.
- Different Debt Ratios.
- Equity.
- Different Types of Shares.
- Different Types of Bonds.
- Rating agencies grades.
- Issuing Securities.
- Venture Capital.
- Initial Public Offerings IPO.
- Motives to go public.
- Three ways to sell shares in an IPO.
- The IPO Process.
- Underwriters as a Certification Device.
- Cost of Going Public.
- IPO Underpricing (aspect of information asymmetry).
- Rights Issues (aspect of fairness).
- Payout Policy.
- Dividend Payment Procedure.
- Reasons the amount of dividends is influenced by.
- Dividends and stock repurchases aren't substitutes.
- For some time repurchases are permitted by the law.
- Correlation between Payout Policy and Company's Value.
- Other (more sophisticated) Theories on Payout Policy.
- Dividend Signalling.
- Transformation of the Balance Sheet.
- Two Basic Principles for Company Valuation.
- Weighted Average Cost of Capital (WACC).
- Numerical Example for Payout Policy.
- Does the capital structure matters?
- Company Valuation.
- The Financial Leverage Effect.
- Example Leverage Effect.
- Modigliani & Miller Irrelevance Proposition.
- The first MM Proposition.
- The second MM Proportion.
- Mathematical formalization of MM1.
- Mathematical formalization of MM2.
- Beta and the leverage.
- Importance of the unlevered Beta.
- Conclusions of MM Propositions.
- Numerical Examples regarding MM.
- Consideration of Corporate Taxes.
- Combining Corporate Tax and Personal one.
- Cost of Financial Distress.
- Bankruptcy Costs.
- Deep Dive on agency costs.
- Pecking Order Theory.
- Financial Slack.
- Conclusion.
- Business Valuation – FCF Approach.
- FCF = EBIT – tax + depreciation & amortization – Δ Working Capital – CapEx.
- Differences between FCF and Net Income.
- WACC.
- Conclusions from Valuing Cargo AG Example.
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This lecture transcript aims to provide a comprehensive overview of the principles and advances in corporate finance, covering topics such as company valuation, taxation, and capital structure. It was created as a resource for students preparing for an upcoming exam but can also be used to gain a deeper understanding of the fundamental concepts of corporate finance. The lecture transcript explores the following key themes: * **Company Valuation**: The transcript delves into various methods of valuing stocks and businesses, including dividend discount models, free cash flow analysis, and price-earning ratios. * **Capital Structure**: It discusses the role of debt and equity financing in company valuation, including the implications of leverage, the Modigliani & Miller irrelevance proposition, and the pecking order theory. * **Payout Policy**: The transcript examines different approaches to distributing profits to shareholders, including dividends, stock repurchases, and their impact on company value. * **Information Asymmetry**: It explores how information asymmetry between company insiders and investors affects decisions like IPO pricing and the use of dividends as signals. * **Agency Costs**: The lecture transcript highlights the potential for conflicts of interest between managers and shareholders and how debt financing can mitigate such conflicts.Zusammenfassung der Kapitel (Chapter Summaries)
The lecture transcript covers a wide range of topics in corporate finance. The key themes and concepts discussed in each chapter are summarized below. **Chapter 1: Goals and Governance of the Firm** * This chapter introduces the fundamental financial decisions facing firms: fund raising and investment. * It discusses the different types of companies (sole proprietorship, partnership, and corporation) and their governance structures. * The chapter also touches upon the concepts of shareholders and stakeholders and their respective rights and interests in the firm. **Chapter 2: Valuation of Stocks** * This chapter explores different methods of valuing stocks, focusing on the dividend discount model and its variations. * It discusses the calculation of expected return and the importance of the cost of equity capital. * The chapter also introduces the concept of the present value of growth opportunities (PVGO) and its role in stock valuation. **Chapter 3: Valuing Businesses** * This chapter presents different approaches to valuing businesses, including free cash flow analysis, price-earning ratio analysis, and market-book ratio analysis. * It discusses the challenges of valuation, particularly for private firms. * The chapter also explores the relationship between company value, growth opportunities, and competition. **Chapter 4: Source and Use of Funds** * This chapter focuses on the sources and uses of funds for companies, including internal financing, debt financing, and equity financing. * It discusses the pecking order theory and its implications for company financing decisions. * The chapter also provides an overview of different types of shares, bonds, and the role of venture capital and initial public offerings (IPOs). **Chapter 5: Payout Policy** * This chapter explores different approaches to distributing profits to shareholders, including dividends and stock repurchases. * It discusses the Miller & Modigliani irrelevance proposition, which argues that payout policy does not affect company value under certain assumptions. * The chapter also examines alternative theories on payout policy, including the rightist and leftist perspectives, and the role of dividend signalling. **Chapter 6: Transformation of the Balance Sheet and The Financial Leverage Effect** * This chapter discusses the transformation of the accounting balance sheet into a financial one, highlighting the importance of market values. * It explores the impact of financial leverage on return on equity (RoE) and equity risk. * The chapter also provides a detailed explanation of the Modigliani & Miller irrelevance proposition and its implications for capital structure. **Chapter 7: Consideration of Corporate Taxes and Cost of Financial Distress** * This chapter discusses the impact of corporate taxes on capital structure and company valuation, introducing the concept of the tax shield. * It also explores the potential for financial distress and its costs, including direct costs and indirect costs (agency costs). * The chapter concludes with an analysis of the trade-off between the benefits and costs of debt financing. **Chapter 8: Business Valuation – FCF Approach** * This chapter focuses on valuing businesses using the free cash flow (FCF) approach. * It discusses the calculation of FCF and the importance of a project-specific WACC. * The chapter also explores the challenges of valuing firms with circularity problems and how to deal with terminal values.Schlüsselwörter (Keywords)
The main keywords and focus topics of the lecture transcript include: corporate finance, company valuation, stock valuation, dividend discount model, capital structure, debt financing, equity financing, Modigliani & Miller irrelevance proposition, pecking order theory, payout policy, dividends, stock repurchases, information asymmetry, agency costs, financial distress, bankruptcy costs, free cash flow (FCF), weighted average cost of capital (WACC), beta, financial leverage, and corporate taxes.
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- Mike G. (Autor), 2017, Corporate Finance. Summary about company valuation and taxation in general, Múnich, GRIN Verlag, https://www.grin.com/document/366654
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