CORPORATE(FINANCE( WHAT(IS(IT?(
0
CORPORATE
FINANCE
WHAT
IS
IT?
Aswath
Damodaran
What
is
corporate
finance?
1
? Every
decision
that
a
business
makes
has
financial
implicaFons,
and
any
decision
which
affects
the
finances
of
a
business
is
a
corporate
finance
decision.
? Defined
broadly,
everything
that
a
business
does
fits
under
the
rubric
of
corporate
finance.
1
ObjecFves
2
? To
give
you
the
capacity
to
understand
the
theory
and
apply,
in
real
world
situaFons,
the
techniques
that
have
been
developed
in
corporate
finance.
? MoOo
for
class:
If
it
cannot
be
applied,
who
cares?.
? To
give
you
the
big
picture
of
corporate
finance
so
that
you
can
understand
how
things
fit
together.
? MoOo
for
class:
You
can
forget
the
details,
but
don't
miss
the
storyline.
? To
show
you
that
corporate
finance
is
fun.
? MoOo
for
class:
Are
we
having
fun
yet?
2
The
TradiFonal
AccounFng
Balance
Sheet
3
The Balance Sheet
Assets
Liabilities
Long Lived Real Assets Short-lived Assets
Fixed Assets Current Assets
Current Short-term liabilities of the firm Liabilties
Debt
Debt obligations of firm
Investments in securities & assets of other firms
Financial Investments
Assets which are not physical, Intangible Assets like patents & trademarks
Other Liabilities
Equity
Other long-term obligations Equity investment in firm
3
The
Financial
View
of
the
Firm
4
Assets
Existing Investments Generate cashflows today Includes long lived (fixed) and
short-lived(working capital) assets
Assets in Place
Expected Value that will be Growth Assets created by future investments
Liabilities
Fixed Claim on cash flows Debt Little or No role in management
Fixed Maturity Tax Deductible
Equity Residual Claim on cash flows Significant Role in management Perpetual Lives
4
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