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.