Corporate Financial Policy

8/2/2019 Corporate Financial Policy

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CORPORATE FINANCIAL

POLICY

MFSM SEM II

Prof. Subhash Dalvi


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What is Corporate

Pertaining to corporations.

Corporations are the most common form ofbusinessorganization, andone which is chartered by a state and given many legal rights as anentity separate from its owners.

This form of business is characterized by the limited liability of its

owners, the issuance of shares of easily transferable stock, andexistence as a going concern.

The process of becoming a corporation, called incorporation, gives thecompany separate legal standing from its owners and protects thoseowners from being personally liable in the event that the company issued (a condition known as limited liability).

Incorporation also provides companies with a more flexible way tomanage their ownershipstructure. In addition, there are different taximplications for corporations, although these can be bothadvantageous and disadvantageous. In these respects, corporationsdiffer from sole proprietorships and limited partnership.
http://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/623/business.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://www.investorwords.com/9150/chartered.htmlhttp://www.investorwords.com/2756/legal.htmlhttp://www.investorwords.com/4282/right.htmlhttp://www.investorwords.com/1714/entity.htmlhttp://www.investorwords.com/2816/limited_liability.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/11345/transferable.htmlhttp://www.investorwords.com/4725/stock.htmlhttp://www.investorwords.com/2189/going_concern.htmlhttp://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/2413/incorporation.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/7216/standing.htmlhttp://www.investorwords.com/10738/protect.htmlhttp://www.investorwords.com/2795/liable.htmlhttp://www.investorwords.com/6456/condition.htmlhttp://www.investorwords.com/2792/liability.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/9736/flexible.htmlhttp://www.investorwords.com/16088/ownership.htmlhttp://www.investorwords.com/4785/structure.htmlhttp://www.investorwords.com/4879/tax.htmlhttp://www.investorwords.com/2381/implication.htmlhttp://www.investorwords.com/4626/sole_proprietorship.htmlhttp://www.investorwords.com/2818/limited_partnership.htmlhttp://www.investorwords.com/2818/limited_partnership.htmlhttp://www.investorwords.com/2818/limited_partnership.htmlhttp://www.investorwords.com/2818/limited_partnership.htmlhttp://www.investorwords.com/4626/sole_proprietorship.htmlhttp://www.investorwords.com/4626/sole_proprietorship.htmlhttp://www.investorwords.com/4626/sole_proprietorship.htmlhttp://www.investorwords.com/2381/implication.htmlhttp://www.investorwords.com/4879/tax.htmlhttp://www.investorwords.com/4785/structure.htmlhttp://www.investorwords.com/16088/ownership.htmlhttp://www.investorwords.com/9736/flexible.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/2792/liability.htmlhttp://www.investorwords.com/6456/condition.htmlhttp://www.investorwords.com/2795/liable.htmlhttp://www.investorwords.com/10738/protect.htmlhttp://www.investorwords.com/7216/standing.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/2413/incorporation.htmlhttp://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/2189/going_concern.htmlhttp://www.investorwords.com/2189/going_concern.htmlhttp://www.investorwords.com/2189/going_concern.htmlhttp://www.investorwords.com/4725/stock.htmlhttp://www.investorwords.com/11345/transferable.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/2816/limited_liability.htmlhttp://www.investorwords.com/2816/limited_liability.htmlhttp://www.investorwords.com/2816/limited_liability.htmlhttp://www.investorwords.com/1714/entity.htmlhttp://www.investorwords.com/4282/right.htmlhttp://www.investorwords.com/2756/legal.htmlhttp://www.investorwords.com/9150/chartered.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://www.investorwords.com/623/business.htmlhttp://www.investorwords.com/1140/corporation.html


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CORPORATE FINANCE

Corporate finance is the area of finance dealing withmonetary decisions that business enterprises make and the

tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize

shareholder value. Although it is in principle different frommanagerial finance which studies the financial decisions of allfirms, rather than corporations alone, the main concepts in the

study of corporate finance are applicable to the financialproblems of all kinds of firms.

The discipline can be divided into long-term and short-termdecisions and techniques. Capital investment decisions arelong-term choices about which projects receive investment,

whether to finance that investment with equity or debt, andwhen or whether to pay dividends to shareholders. On theother hand, short term decisions deal with the short-termbalance ofcurrent assets and current liabilities; the focus hereis on managing cash, inventories, and short-term borrowingand lending.
http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Shareholder_valuehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Managerial_financehttp://en.wikipedia.org/wiki/Capital_investmenthttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Capital_investmenthttp://en.wikipedia.org/wiki/Capital_investmenthttp://en.wikipedia.org/wiki/Capital_investmenthttp://en.wikipedia.org/wiki/Managerial_financehttp://en.wikipedia.org/wiki/Managerial_financehttp://en.wikipedia.org/wiki/Managerial_financehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Shareholder_valuehttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Finance


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FINANCIAL POLICIES RELATING TO

Capital Budgeting / Project Appraisal

(Economic, Technical & Financial feasibility studies, Risk evaluation & sensitivity analysis,Measurement of cost of capital & determining minimum rate of return for project decisions,

Financial control & follow-up of projects evaluated under DCF Techniques)

Disinvestment as a Financial Strategy (Opportunities of disinvestment, Factors Influencing,Financial Analysis etc)

Expansion & Diversification Strategies (Market, Customer, Product, Process, Developingconglomerates & Subsidiaries, Financial, Tax & Govt. Policies governing such decisions,Mergers & Amalgamations, Issue of Bonus Shares & their financial implications)

Role ofDebt Financing in Indian Environment

Corporate Planning & Break-Even Analysis (With multiple constraints like shortage ofpower & materials, Customer & Market Constraint, Export obligation, price control,production mix etc.)

Basic concept in International Financial Management (Various aspects concerning foreignexchange transactions, International financial markets & Institutions, Euro Dollars Market,Petro-Dollars Market)

Working Capital Management


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WORKING CAPITAL

MANAGEMENT

MMS - Sem II

Prof. Subhash Dalvi


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Introduction Fixed Capital Required for procurement of

fixed assets viz land, machinery, building,plant etc.

Working Capital Required for financingday to day activities

Working capital is warm blood passingthrough the arteries and veins of thebusiness and sets it ticking.

Liquidity & profitability are important in

business. Liquidity depends on theprofitability of the business activities andprofitability is hard to achieve withoutsufficient liquid resources.


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Definitions

Excess of Current Assets over CurrentLiabilities

It is that capital which is not fixed

Circulating capital means current assets ofa company that are changed in the ordinarycourse of business from one form toanother. E.g. from cash to inventories,inventories to receivables & from

receivables to cash Amount of funds necessary to cover the cost

of operating the enterprise


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CA & CL are assets &

liabilities which arise in the

course of normal operationsof an enterprise. These assets

change form and are used to

pay off current liabilities.

This changing of assets due

to and in course of

operations is known as

Working Cycle or Operating

Cycle. The assets & liabilities

thus, arising can be said tobe CA & CL and the

difference between the two as

Working Capital


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FACTORS DETERMINING WORKING

CAPITAL REQUIREMENT

Nature of Business Public utilities requires lessworking capital as they sell on cash basis. Tradingbusiness requires proportionately larger WC as ithas to carry certain inventories & allow credit to itscustomers. Manufacturing concern requires huge

working capital as compared to trading firm.However the requirement of WC varies fromindustry to industry and from time to time in thesame industry

Production Policies Level of production

Production Process Long process more WC & viceversa

Size of Business Unit Larger the size more theWC & vice versa


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Purchase & Sales Terms Credit purchase

& Cash sales would require less capital &Cash purchase & Credit sales would requiremore WC

Inventory Turnover Low inventoryturnover more WC & vice versa

Seasonal variations sugar industry, Oilindustry etc

Dividend Policy if dividend is paid moreWC & vice versa

Business Cycle More WC duringprosperity & less during depression

Change in Technology


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IMPORTANCE OF WORKING CAPITAL

Enables the co. to meet its obligations

Ensures solvency of the company

Ensures the credit standing of thecompany

Facilitates obtaining credit from bank

without much difficulty Enables a company to make prompt

payment to its creditors


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WORKING CAPITAL MANAGEMENT

Refers to all aspects of managing andcontrolling current assets and currentliabilities.

It is an attempt to solve the problems thatarise in the management of current assetsand current liabilities

Objective is to manage the CA & CL

efficiently to bring about satisfactory level ofworking capital so that business can runsmoothly


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Documents

Corporate Financial Policy