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En provenance du cours de The University of Melbourne

Corporate Financial Decision-Making for Value Creation

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The University of Melbourne

Corporate Financial Decision-Making for Value Creation

276 notes

Cours 3 sur 5 dans Specialization Essentials of Corporate Finance

In this course, participants will learn about the key financial decisions modern corporations face, as well as the alternative methods that can be employed to optimize the value of the firm’s assets. This is part of a Specialization in corporate finance created in partnership between the University of Melbourne and Bank of New York Mellon (BNY Mellon).

À partir de la leçon

Raising Capital and the Choices Firms Face

In week 2 we will explain the mechanics behind how firms go to the market via an initial public offering (IPO) to raise new equity capital. We then demonstrate the impact of introducing debt on the returns to shareholders and highlight the different factors that influence debt levels for firms operating in different industries. We conclude by considering how firms make decisions about the optimal level of profits that should be returned to shareholders.

BNY Mid Course Check-in7:00

Mid Course Check-in with Sean Pinder1:28

Rencontrer les enseignants

Paul Kofman
Dean, Faculty of Business and Economics
Sidney Myer Chair of Commerce
Sean Pinder
Associate Professor
Faculty of Business and Economics

Hello, my name is Amy and I'm with the Client Service Delivery Group at

BNY Mellon based in East Syracuse, New York.

Congratulations on your progress so far in the Essentials of

Corporate Financial Analysis and Decision Making Coursera program.

I'm sure you're finding it really helpful to come to grips with the language and

concepts of modern business, but you likely still have questions about the role

of banks and other financial institutions and how these various institutions help to

make the global marketplace function efficiently from day to day.

I'd like to explain to you a little more about what BNY Mellon does in terms of

helping businesses with their decisions for raising capital or investing capital.

So let's start at the beginning.

Our partners and clients are generally looking for one of two basic things.

To raise money to invest in their business, to help it grow and

increase profitability or to invest money that they already have.

These parties in the market have a symbiotic relationship.

One providing capital to the other, in return for gains.

Let's start with a company looking to invest their capital.

There's a lot to consider before a company seeks investment opportunities.

They often begin their work by looking closely at the strategic goals,

business needs and of course, their accounts.

There are many options companies can consider to invest their capital,

such as restructuring or investing directly in their business, acquiring or

merging with other companies, or making other types of investments.

Let's tie this in with the earlier sessions of the course

where accounting was discussed.

Understanding concepts like NPV and IRR are important.

NPV is the net present value, and it means that you deduct your outgoings and

costs from your income on a particular project or line of business, and

then discount the net to take into account inflation and the changing value of money.

It's a good concept,

as it lets you know the real time performance of your business.

So if I was looking to expand and grow by taking over one of my local competitors,

I'd have to look at their income and also shaded costs over let's say,

the next five years and consider other external factors,

such as a rise in inflation, that could eat away at my profits.

If a business is considering a few options for projects for

investments, then IRR is useful.

Internal rate of return takes the NPV and uses a ratio to get it to zero.

The purpose of this is to compare different acquisitions and

projects in terms of how profitable they can be.

These concepts so far involve making an investment in another business

with the desired outcome of making money or growing your own business.

Another important concept in business is the pursuit of organic growth potential.

This involves looking for ways to cut costs, improve profits and

enhance efficiency.

I have read that modern business theories suggest that making your business lean

is a never-ending process, as you can always do things faster, better or for

greater returns.

Now let's talk about those companies who need to raise money.

They too have numerous options to consider before stepping onto a bigger stage.

To tell you more about that, I'm going to hand the discussion over to my colleague.

>> Hi, I'm Narender and

I also work in Client Service Delivery at BNY Mellon in our New York City office.

I'm going to tell you more about how businesses raise money.

Most companies looking for capital will typically evaluate two options.

Borrowing money to expand by issuing debt or converting some or

all of their business into stock and selling ownership stake,

which can be done privately or by listing shares on the stock market.

With that, a business may show what we call a corporate bond.

It is essentially borrowing large sums of money from investors

with the promise to repay that money at a set future date.

The investors will receive interest on the amount loaned,

which will depend on factors such as business credit rating,

the prevailing interest rates in the market, etcetera, etcetera.

Bond times can vary greatly.

It may be as little as five years, ten years or in some cases,

considerably longer.

When bonds are issued, the ownership of the company does not change.

So who would buy these bonds? Investors who have the cash and want to earn interest.

Here at BNY Mellon,

we serve those investors in a number of ways by holding the bonds,

distributing interest payments, conducting tax reporting and processing trades.

We also provide a range of accounting services,

which may include the daily valuation of a portfolio of bonds.

Some of our largest clients are investment firms which often maintain

many bonds from diverse global companies.

For the businesses, issuing a bond may seem like a smart choice,

but I know that not all businesses want required debt.

So what about a stock issue?

Let's go back to Amy to find out more.

>> In a public stock offering the business is valued, converted to public stock and

then sold through the market.

The end result is the business is sold to investors and a large sum of the cash from

the sale is plowed back into the business to invest in growth and expansion.

Owners of the business don't really own their business anymore,

at least not all of it.

Instead, they become employees accountable to the company's directors and

the new owners, the stockholders of the company.

Investor opinion now influences how the business develops and

income is shared with them when profits are made, among other obligations.

In our daily role, we get to see a lot of stocks moving and substantial sums of

money going from investors to businesses all driving economic growth.

We help to connect people with money looking to make investments with

the people and businesses who need that money.

There are other options available to generate capital, but

most will be a variation of the choice of borrowing or issuing stock.

For instance, BNY Mellon is a big player in the market of depository receipts,

which works really well for international investors and foreign companies.

Narender can tell you more.

>> A depository receipt, also known as a DR,

represents underlying shares of a stock in a foreign market.

There can be huge benefits for

both investors who own DRs instead of owning shares directly in a foreign market

and for the companies issuing stock that want to raise money in other countries.

For example, a U.S. investor could own DRs for a Peruvian company,

but while the underlying shares trade on a Peruvian market, the DRs are, what?

Traded on a U.S. exchange like any other stock, with any dividends paid in U.S.

dollars and following U.S.

rules and regulations for trade settlement and transfers.

For the Peruvian company,

offering DRs gives them easier access to investors in the huge U.S. market.

BNY Mellon's role in this process can include helping companies understand U.S.

regulatory rules and filing requirements, issuance and cancellation of DRs,

and as with corporate bonds, servicing investors by issuing dividends in U.S.

dollars, tax deporting and so on and so forth.

It is an effective process, and as an investments company for the world,

BNY Mellon is a big player in the capital markets.

We hope you're enjoying the course, and

as you progress you will learn more about how companies raise and invest capital and

the role global banks play in the capital markets.

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