INTRODUCTION TO CORPORATE FINANCE (1)

1. FACTORS AFFECTING FIXED CAPITAL 1.Nature of business 2.size of business 3.scope of business 4.extent of lease or rent 5.arrangement of sub-contract. 6.acquisition of old assets. 7.acquisition of assets on concessional rates 8.international condition 9.trend in economy 10.population trend 11.consumer preference 12.competitive factor

2. It is a mix of long term and short term debts,common equity,preferred equity. "Security mix" Definition- A firm's capital structure is the relation between the debt and equity securities that makes up the firm's financing of its assets

2.1. COMPONENTS: 1.equity share capital 2.preference share capital 3.retained earnings 4.borrowed capital -debentures -term loan

2.1.1. FIXED CAPTIAL- Capital which is required to hu fixed assets in the business. This investment is for longer period and the assets stay in business almost permanently. Required at initial stages of business. Example-Plant and Building Initially fixed capital is brought by company's promoters. Can gets funds for purchase of fixed assets,securities, issue of long term loans.

3. TWO DECISIONS: 1.Financing 2.Investment

3.1. FINANCING: Firm has multiple choices of finance. It can raise EQUITY or DEBT CAPITAL. It is the duty of finance manager to ensure right amount of capital with right combination of debt and equity.

3.2. INVESTMENT: Collection of funds,finance manager has to take decision on how to use these funds in best and systematic way. This Is also known as CAPITAL BUDGETING.

4. For this entrepreneur needs to look after FIXED and WORKING captial.

5. WORKING CAPITAL: Excess of current assets over current liabilities is working capital. Money needed for day to day administration. The requirement keeps changing. To meet unexpected expenses. "The sum of current assets is working capital" Also known as CIRCULATING CAPITAL

5.1. FACTORS AFFECTING WORKING CAPITAL 1.nature of business 2.size of business 3.volume of sales 4.production cycle 5.business cycle 6.terms of purchase and sales 7.credit control 8.growth and expansion 9.management ability 10.external factors

6. CAPITAL STRUCTURE

7. CAPITAL REQUIREMENT:

8. Definition- Corporate finance deals primarily with acquisition and use of capital by business corporation

8.1. Which included financial planning, capital market,money market,share market,etc.

8.2. Chief financial officer looks after *Adequate Finance *Procuring funds with minimum cost. *utilization of funds effectively *Maximum returns

8.3. IMPORTANCE OF CORPORATE FINANCE

8.3.1. 1.Helps in decision making 2.Helps in raising capital 3.Helps in Research and Development 4.Helps in smooth running of business firms. 5.Brings co-ordination between various activities 6.Promotes expansion and Diversification 7.Managing Risk 8.Replace old assets 9.Payment of dividend and interest. 10.Payment of taxes/fees