Cheatography
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Review the concepts of Corporate Finance as taught by Professor Aswath Damodaran
This is a draft cheat sheet. It is a work in progress and is not finished yet.
Corporate Finance BIG PICTURE
What is Corporate Finance?
Investment Decision--
The hurdle rate to reflect the riskiness of the investment and the mix of debt and equity used to fund it.
The return should reflect the magnitude and the timing of the cashflows as well as all side effects. |
Financing Decision--
The optimal mix of debt and equity maximizes firm value, also:
the right kind of debt matches the tenor of your assets. |
Dividend Decision--
How much cash can you return? and
How you choose to return cash to the owners should it be dividend or buybacks? |
Themes of Corporate Finance
1. Corporate finance is common sense |
2. Corporate finance is focus on maximizing the value of the business. |
3. The focus of the Corporate finance in corporate finance changes across the life cycle. |
4. Corporate finance is universal (Small/large, public/private, US/emergent) |
5. If you violate first principles, you will pay a price (no matter who you are) |
Who owns/runs your firm?
Case 1: Splintering of Stockholders (Disney) |
Case 2: Voting versus Non-voting shares & Golden Shares. (Vale) |
Case 3: Pyramid holdings (Tata) |
Case 4: Legal rights & COrporate Structures (Baidu) |
Examples of Companies
1. Institutional Default (No body will push for you - Disney 2003) |
2. Self Holdings (Largest holder is the company itself - China Mobile Ltd) |
3. The Government Influence (Vale - GDF Suez) |
4. Different voting rights (Facebook, Google, LinkedIn) |
5. Family Group Company (Tata, LVMH) |
6. Founders hang on (Las Vegas Sands Corp, Microsoft) |
7. Corporate Cross Holdings (Lufthansa owns Jet Blue) |
8. Activist Investors (Danone SA - Trian fund management) |
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Life Cycle of Corporation
Classical Objective Function
Who owns/runs your firm?
Who are the top stockholders? Any potential conflicts of interests?
Solutions to failed corporate financial theory
Assign responsibility for monitoring managers to someone other than stockholders. |
Choose different objective
maximize earnings, maximize revenues, maximize market share. |
Expected Return
Expected Return = Riskfree Rate + Beta * (Expected Retorn on the Market Portfolio - Riskfree Rate)
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