CORPORATE FINANCE

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.

 

 

 

 

 

 

 

 

                                                                                     

ACCOUNTING

ACCOUNTING:

Term accounting use to define Recording of transactions, Summarizing the business flow, analyze to make policy based concrete decision and reporting the current and future growth prospects of company. Here the financial information is served to shareholder and stake holder in understandable format, i.e., financial transaction, performance and cash flow.

Accounting standards improve the reliability of financial statements. The financial statements include the income statement, the balance sheet, the cash flow statement, and the statement of retained earnings. The standardized reporting allows all stakeholders and shareholders to assess the performance of a business. Financial statements need to be transparent, reliable, and accurate. 

We have classification for accounting" 

1.   Financial Accounting  

Financial accounting involves the preparation of accurate financial statements. The focus of financial accounting is to measure the performance of a business as accurately as possible. While financial statements are for external use, they may also be for internal management use to help make decisions. Accounting principles and standards, such as GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards), are standards that are widely adopted in financial accounting.  The accounting standards are important because they allow all stakeholders and shareholders to easily understand and interpret the reported financial statements from year to year.

2.   Managerial Accounting

Managerial accounting analyzes the information gathered from financial accounting. It refers to the process of preparing reports about business operations. The reports serve to assist the management team in making strategic and tactical business decisions.

Managerial accounting is a process that allows an enterprise to achieve maximum efficiency by reviewing accounting information, deciding on the best next steps to follow, and then communicating these next steps to internal business managers.

An example of managerial accounting is cost accounting. Cost accounting focuses on a detailed break-up of costs for effective cost control. Managerial accounting is very important in the decision-making process.

Income statement

Often, the first place an investor or analyst will look is the income statement. The income statement shows the performance of the business throughout each period, displaying sales revenue at the very top. The statement then deducts the cost of goods sold (COGS) to find gross profit. From there, the gross profit is affected by other operating expenses and income, depending on the nature of the business, to reach net income at the bottom – “the bottom line” for the business. 

Balance sheet

The balance sheet displays the company’s assets, liabilities, and shareholders’ equity at a point in time. As commonly known, assets must equal liabilities plus equity. The asset section begins with cash and equivalents, which should equal the balance found at the end of the cash flow statement. The balance sheet then displays the changes in each major account from period to period. Net income from the income statement flows into the balance sheet as a change in retained earnings (adjusted for payment of dividends). 

Cash flow statement

The cash flow statement then takes net income and adjusts it for any non-cash expenses. Then, using changes in the balance sheet, usage and receipt of cash is found. The cash flow statement displays the change in cash per period, as well as the beginning balance and ending balance of cash.

The Role of Accountant

The role of an accountant is to responsibly report and interpret financial records. Small businesses may hire only one accountant. Large companies may employ an entire accounting department.

The accounting profession covers a broad range of roles, including bookkeeping, tax planning, and audit. Accountants may become certified with designations, such as Certified Public Accountant (CPA) in the U.S., Chartered Accountant (ACA) in the U.K., Chartered Professional Accountant (CPA) in Canada, and so on. The four largest accounting firms globally include Deloitte, KPMG, PwC, and EY.

There are some popular Accounting software for small and medium size businesses. They are defined by their types and use. Their types are,

1. Cloud based

2. On premises

3. Enterprise Accounting

4. Small business Accounting

5. Open source Accounting

6. ERP Accounting

7. Commercial Accounting

8. Industry-Specific Accounting

These Accounting software should have essential features like,

• Accounting
• Billing & Invoicing
• Inventory
• Payroll
• Project Management
• Reporting 
• Customer Relationship Management (CRM)

Popular accounting softwares are Tally, Zoho books, Fresh books, Margin Edge, Wave, Xero, Neat, Kashoo etc