Corporate Finance
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, as well as the tools and analysis used to allocate financial resources. courtesy:(http://en.wikipedia.org/wiki/Corporate_finance) (Essentials of Corporate Finance, Fifth Edition) One thing we should note is that the term corporate finance seems to imply that what we cover is only relevant to corporations, but the truth is that almost all of the topics we consider are much broader than that. Maybe business finance would be a little more descriptive, but even this is too narrow because at least half of the subjects we discuss in the pages ahead are really basic financial ideas and principles applicable across all the various areas of finance and beyond. Corporate Finance can also be understandable as financial activities related to running a corporation. A division or department that oversees the financial activities of a company. Corporate finance is primarily concerned with maximizing shareholder value through long-term and short-term financial planning and the implementation of various strategies. Everything from capital investment decisions to investment banking falls under the domain of corporate finance. Among the financial activities that a corporate finance department is involved with are capital investment decisions. Should a proposed investment be made? How should the company pay for it; with equity or with debt, or combination of both? Should shareholders be offered dividends on their investment in the company? These are just some of the questions a corporate financial officer attempts to answer on a consistent basis. Short-term issues include the management of current assets and current liabilities, inventory control, investments and other short-term financial issues. Long-term issues include new capital purchases and investments. |
business stakeholders
In general, a stakeholder is someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm. Such groups will also attempt to exert control over the firm, perhaps to the detriment of the owners. A stakeholder is anyone with an interest in a business. Stakeholders are individuals, groups or organisations that are affected by the activity of the business. They include: Owners who are interested in how much profit the business makes. A stakeholder is any person, organization, social group, or society at large that has a stake in the business. Thus, stakeholders can be internal or external to the business. A stake is a vital interest in the business or its activities. It can include ownership and property interests, legal interests and obligations, and moral rights. A legal obligation may be the duty to pay wages or to honor contacts. A moral right may include the right of a consumer not to be intentionally harmed by business activities. They can; Affect a business, be affected by a busines, and be both affected by a business and
affect a business.
stockholders: the principal of business entity
'PRINCIPAL SHAREHOLDER' (commonly known as)
The main owner of a publicly traded investment, is also known as the majority shareholder. The principal shareholder is the entity that owns the greatest percentage of a company's shares and therefore has the largest stake in the company's success. Smaller investors often look to the behavior of the principal shareholder as an indication of the company's performance. If the principal shareholder makes a large additional investment in the company, for example, this is probably an indication that the company is performing well.
In some cases, the company's principal shareholder is also its CEO, president or founder. This is common due to the fact that often the individual or family which founded the company typically insists on maintaining majority control over the company's shares, allowing them, the primary shareholders to dictate to a large degree the direction of the business.
The main owner of a publicly traded investment, is also known as the majority shareholder. The principal shareholder is the entity that owns the greatest percentage of a company's shares and therefore has the largest stake in the company's success. Smaller investors often look to the behavior of the principal shareholder as an indication of the company's performance. If the principal shareholder makes a large additional investment in the company, for example, this is probably an indication that the company is performing well.
In some cases, the company's principal shareholder is also its CEO, president or founder. This is common due to the fact that often the individual or family which founded the company typically insists on maintaining majority control over the company's shares, allowing them, the primary shareholders to dictate to a large degree the direction of the business.
management: the agent of interest
We all know that management is a direct or indirect control of people achieving an organizational goal for a better vision for the organization. I quote Merriam Webster’s definition of management as
TYPES OF MANAGEMENT ENTITIES
Management entities may assume any of the three forms listed below. While the term management agent is technically inaccurate when applied to an owner/manager, for simplicity this Chapter will use the term "management agent" to refer collectively to all three forms of management entities.
OWNER MANAGER
This term applies when the individual or entity that owns the project is the same individual or business entity that directs and oversees the operation of the project. If the management entity is a general partner of the limited partnership which owns the project, the management entity is not an owner/manager because the management entity and the mortgagor are different business entities.
IDENTITY-OF-INTEREST MANAGEMENT AGENT
This term applies to a management agent whose relationship with the project owner or any officer, director or partner of the mortgagor entity is such that the management fee will not be determined through arms-length negotiation. Such a relationship should be construed to exist when the owner and the management agent are not the same person but (1) the project owner; or (2) any officer or director of the project owner or (3) any person who directly or indirectly controls 10 percent or more of the project owner's voting rights or directly or indirectly owns 10 percent or more of the project owner; is also (1) an officer or director of the management agent; or (2) a person who directly or indirectly controls 10 percent or more of the management agent's voting rights or directly or indirectly owns 10 percent or more of the management agent. For the purposes of this definition, the term "person" includes any individual, partnership, corporation, or other business entity. Any ownership, control or interest held or possessed by a person's spouse, parent, child, grandchild, brother or sister is attributed to that person. For example, if a limited partnership owns a project and the managing general partner acts as management agent, the general partner would be considered an identity-of-interest management agent.
INDEPENDENT FREE MANAGER
This term applies when the agent is neither an owner/manager nor an identity-of-interest agent. Fee managers have no financial interest or involvement in the project other than for the provision of management services and the collection of management fees as provided in the management agreement.
TYPES OF MANAGEMENT ENTITIES
Management entities may assume any of the three forms listed below. While the term management agent is technically inaccurate when applied to an owner/manager, for simplicity this Chapter will use the term "management agent" to refer collectively to all three forms of management entities.
OWNER MANAGER
This term applies when the individual or entity that owns the project is the same individual or business entity that directs and oversees the operation of the project. If the management entity is a general partner of the limited partnership which owns the project, the management entity is not an owner/manager because the management entity and the mortgagor are different business entities.
IDENTITY-OF-INTEREST MANAGEMENT AGENT
This term applies to a management agent whose relationship with the project owner or any officer, director or partner of the mortgagor entity is such that the management fee will not be determined through arms-length negotiation. Such a relationship should be construed to exist when the owner and the management agent are not the same person but (1) the project owner; or (2) any officer or director of the project owner or (3) any person who directly or indirectly controls 10 percent or more of the project owner's voting rights or directly or indirectly owns 10 percent or more of the project owner; is also (1) an officer or director of the management agent; or (2) a person who directly or indirectly controls 10 percent or more of the management agent's voting rights or directly or indirectly owns 10 percent or more of the management agent. For the purposes of this definition, the term "person" includes any individual, partnership, corporation, or other business entity. Any ownership, control or interest held or possessed by a person's spouse, parent, child, grandchild, brother or sister is attributed to that person. For example, if a limited partnership owns a project and the managing general partner acts as management agent, the general partner would be considered an identity-of-interest management agent.
INDEPENDENT FREE MANAGER
This term applies when the agent is neither an owner/manager nor an identity-of-interest agent. Fee managers have no financial interest or involvement in the project other than for the provision of management services and the collection of management fees as provided in the management agreement.
bondholders: creditors of the corporate
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the second market.
Thus a bond is a form of loan or IOU (sounded "I owe you"): the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or short term commercial paper are considered to be money market instruments and not bonds: the main difference is in the length of the term of the instrument.
Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e. they are investors), whereas bondholders have a creditor stake in the company (i.e. they are lenders). Being a creditor, bondholders have absolute priority and will be repaid before stockholders (who are owners) in the event of bankruptcy.
Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks are typically outstanding indefinitely. An exception is an irredeemable bond, such as Consols, which is a perpetuity, i.e. a bond with no maturity.
They are the owner of a government or corporate bond. It is often safer than being a shareholder because if a company liquidates, it must pay its bondholders before it pays its shareholders. A bond represents a loan agreement between an issuer and an investor, and the terms of the bond obligate the issuer to repay the borrowed amount (the principal) by a specific date. The investor (the bondholder) usually earns a specific amount of interest on a semiannual basis.
Bondholders can buy and sell their bonds on the bond market.
Being a bondholder is much different that being a shareholder. For one thing, bondholders are lenders; shareholders are owners. Also, bondholders cannot vote and they are not entitled to dividends. But perhaps most important is the fact that bondholders rank senior to shareholders. This means that the bondholders are among the first in line to be repaid in the event the issuer liquidates. Shareholders might receive some proceeds from the liquidation after this point, if there is anything left. This seniority provides an extra level of security for bondholders, and this is one reason corporate bonds are generally considered "safer" investments than stock.
Thus a bond is a form of loan or IOU (sounded "I owe you"): the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or short term commercial paper are considered to be money market instruments and not bonds: the main difference is in the length of the term of the instrument.
Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e. they are investors), whereas bondholders have a creditor stake in the company (i.e. they are lenders). Being a creditor, bondholders have absolute priority and will be repaid before stockholders (who are owners) in the event of bankruptcy.
Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks are typically outstanding indefinitely. An exception is an irredeemable bond, such as Consols, which is a perpetuity, i.e. a bond with no maturity.
They are the owner of a government or corporate bond. It is often safer than being a shareholder because if a company liquidates, it must pay its bondholders before it pays its shareholders. A bond represents a loan agreement between an issuer and an investor, and the terms of the bond obligate the issuer to repay the borrowed amount (the principal) by a specific date. The investor (the bondholder) usually earns a specific amount of interest on a semiannual basis.
Bondholders can buy and sell their bonds on the bond market.
Being a bondholder is much different that being a shareholder. For one thing, bondholders are lenders; shareholders are owners. Also, bondholders cannot vote and they are not entitled to dividends. But perhaps most important is the fact that bondholders rank senior to shareholders. This means that the bondholders are among the first in line to be repaid in the event the issuer liquidates. Shareholders might receive some proceeds from the liquidation after this point, if there is anything left. This seniority provides an extra level of security for bondholders, and this is one reason corporate bonds are generally considered "safer" investments than stock.