CORPORATE FINANCE
The
term Corporate or Corporation gives glimpse of Associates, Conglomerates, Business
Empires, Multinationals etc. These corporates are generated by share or
stake holders with business, acquisition, contracts, profits as prime motives.
There
are also Not-for-profit entities operate under the category of charitable
organizations, which are dedicated to a particular social cause such as
educational, religious, scientific, or research purposes.
The
Corporation commence their operations with their active Board of Directors
elected by share-holders. The business requires Capital, planning &
strategy, team, finance etc.
The
BOD is decision making authority and sense to define corporate strategy. Corporate
strategy takes a portfolio approach to strategic decision making by looking
across all of a firm’s businesses to determine how to create the most value. In
order to develop a corporate strategy, firms must look at how the various
business they own fit together, how they impact each other, and how the parent
company is structured, in order to optimize human capital, processes, and
governance. Corporate strategy builds on top of business strategy, which is
concerned with the strategic decision making for an Individual business.
The
key components of Corporate Strategies are,
•
Allocation of resources
•
Organizational design
•
Portfolio management
•
Strategic tradeoffs
Here
skilled manpower is our asset distributed through out the firm. The Leader at
the right place at right time to create the most business value. Allocation of capitol across all businesses
to earn highest risk-adjusted return. Also, looking for external opportunities i.e.,
contracts and Acquisition for internal projects.
We
have to ensure necessary corporate structure the Head office and reporting system
of individual business unit to generate maximum number of values.
Portfolio
management looks at the way business units complement each other, their
correlations, and decides where the firm will “play” (i.e., what businesses it
will or won’t enter). The companies are categorized by their Market
capitalization. We have Apple, Microsoft, IBM & Facebook large cap
(MC>$10BN) companies. Others are Mid cap, small cap and Micro cap.
One
of the most challenging aspects of corporate strategy is balancing the
tradeoffs between risk and return across the firm. It’s important to have a
holistic view of all the businesses combined and ensure that the desired levels
of risk management and return generation are being pursued.
We
have analyst and associates spends lots of time in Excel spread sheet to forecast
a business’ financial performance into the future. The forecast is typically based on the
company’s historical performance, assumptions about the future, and requires
preparing an income statement, balance sheet, cash flow statement, and
supporting schedules (known as a 3-statement model). From there, more advanced
types of models can be built such as discounted cash flow analysis (DCF model),
leveraged-buyout (LBO), mergers and acquisitions (M&A), and sensitivity
analysis. The output of a financial model is used for decision making and
performing financial analysis, whether inside or outside of the company. It
helps executives to make decisions about Raising capital (debt and/or equity), Making
acquisitions (businesses and/or assets), Growing the business organically
(e.g., opening new stores, entering new markets, etc.), Selling or divesting
assets and business units Budgeting and forecasting (planning for the years
ahead), Capital allocation (priority of which projects to invest in), Valuing a
business & Financial statement analysis/ratio analysis Management
accounting.
The
bank shows the valuation methods it used to reach certain conclusions. For
example, the bank may use comparable analysis to benchmark the client’s
business against other similar firms in its market. It obtains the figures
using sales, revenues, and valuation multiples like PE and trading multiples.
Other valuation methods that can be used include financial modeling and DCF
analysis.
Private
Equity (PE) is an asset class and investing style that consists of buying an
ownership interest in operating companies that are private – not
publicly-traded. Common strategies
within P.E. include leveraged buyouts (LBO), venture capital, growth capital,
distressed investments, and mezzanine capital. Typically, a PE firm looks for firms that are
undervalued, so that acquiring the company will create value for the PE firm.
Top PE firms are,
·
The
Carlyle Group – Washington D.C.
·
Kohlberg
Kravis Roberts (KKR) – New York City
·
The
Blackstone Group – New York City
·
Apollo
Global Management – New York City
·
TPG
– Fort Worth
·
CVC
Capital Partners – Luxembourg
·
General
Atlantic – New York City
·
Ares
Management – Los Angeles
·
Clayton
Dubilier & Rice – New York City
·
Advent
International – Boston
Financial
ratios:
Financial
matrices and Ratios are useful to prepare Company's Balance sheet, Profit &
Loss statements, Accounts, Annual Reports etc. These reports give company's
overall performance. And based upon this performance reports, An Analyst plans
the future strategy for investing portfolios and predicts the individual
company’s growth prospects.
To
finance the Corporate, market overview and the related strategy formulation
should be well understood. For that We can utilize the credible data sources from resources
like, World-bank, Gartner, IDC, Forrester, Bloomberg, Reuters etc.
Financial Modelling and Valuation analysis plays key role in Corporate Finance.