What’s Corporate Finance all about?Andre L. Braga3rd May, 2016

Just in case you’ve never been told about it…

Companies make money.

Some of them make a lot of money.

Someone has to manage that money, otherwise the company doesn’t stay in business very long.

That’s where the Corporate Finance team comes in.

Source: https://www.wetfeet.com/articles/career-overview-corporate-finance 2

… but before we talk about companies, let’s discuss about some basic Finance concepts …

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These are the Does: John, Jane and children.

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This is John Doe. He’s a sales person at a medical devices

company and makes £65k a year.

This is Jane Doe. She’s a HR Manager at an insurances

company and makes £85k a year.

This is Peter. He’s 14 years old. Dreams about being an rock star.

This is Tom. He’s 11 years old. He wants to be an astronaut.

This is Sophie. She’s 2 years old. She wants to play on dad’s Ipad.

So they’ve done the maths…

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£65k £85k £150k

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£65k £85k £150k … but …

Description Per Month Per YearNet

Earnings

Gross earnings 150,000 150,000

Tax on earnings -5,000 -60,000 90,000

Mortgage -2,800 -33,600 56,400

Utilities -200 -2,400 54,000

Municipality tax -100 -1,200 52,800

Groceries -400 -4,800 48,000

Eating out -400 -4,800 43,200

Selling old cars 20,000 63,200

Buying new cars -40,000 23,200

Car insurance -1,800 21,400

Fuel and maintenance -200 2,400 19,000

Holidays in Spain -4,500 14,500

Legoland annual pass -650 13,850

New Iphone + Ipad -1,250 12,600

TV, Mobile, Internet -150 -1,800 10,800

No, they are not saving £10,800! They still have to buy clothes, have

their hair cut, pay some medical bills, children’s school and

extracurricular activities… and don’t forget the botox, Champions League and Justin Bieber’s gig !!!

The Does are going into bankruptcy.

The Does have only three options on hand:

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1. Do nothing and go bankrupt.Not a wise option. Really.

2. Cut costs.Conventional wisdom.

3. Make more money.Entrepreneur’s mind-set.

… because money is a limited resource …

… now back to companies making a lot of money…

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Media has changed, but not the ad industry.

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Last century TV ads… … and this century Facebook ads !!!

Some Big Advertisers on Facebook

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Facebook is a Companyworth $ 190 billion, even ifan average user is currently worth less than $60 per year.

Facebook has more than 1.6 billion users aroundthe world, and the futureof advertising is expectedto be more on the net thanon traditional media.

And how does these things link back to Corporate Finance?(or did I come to the marketing workshop by mistake?)

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Finance should drive business to the best use of financial resources - in other words, their money.

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Accounts Current Year Prior Year Growth %

Revenue 105,000 100,000 +5%

Cost of Goods -45,000 -50,000 -10%

Gross Profit 60,000 50,000 +20%

Marketing & Advertising -10,500 -10,000 +5%

Product Contribution 49,500 40,000 +24%

Commercial Fixed Costs -29,500 -29,000 +2%

Profit Before Income Tax 20,000 11,000 +82%

Income Tax -7,000 -3,850 +82%

Net Profit to Shareholders 13,000 7,150 +82%

Net Profit as % Revenue 12% 7% +500 basis points

Use the growth to fund smart investments, build brands with the right marketing and generate more growth.

This is Unilever’s Virtuous Circle(at least the Financial part of it)

Profitable Volume Growth

• Growth should come from the most profitable items.

Cost Leverage + Efficiency

• Continuously pressure Cost of Goods and Fixed Costs down.

Innovation + Marketing Investment

• Reinvest on brands to create sustainable growth.

13Source: https://www.unilever.com/Images/ar14_dia_biz_model_1_tcm244-419714_1.png

But how can Finance help driving the right business model?

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“… the winner is usually theone that’s just good enough.”

Now that you know what Corporate Finance is all about, and you’ve learnt about VHS and Betamax …… can you think like a Corporate Finance professional and tell me why Apple continues to win the battle between IPhone and Samsung Galaxy?

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Samsung Galaxy S7 is beautifully designed,has better screen and higher pictureresolution than IPhone 6S, comes withwireless charging.

Nonetheless, the IPhone is more expensiveand has consistently outperformed itsmost challenging competitor.

Thank you.

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