Summary Print Book of David Hillier's CorporateFinance 4/e

ISBN-10 1526848082 ISBN-13 9781526848086
256 Flashcards & Notes
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This is the summary of the book "Print Book of David Hillier's CorporateFinance 4/e". The author(s) of the book is/are HILLIER. The ISBN of the book is 9781526848086 or 1526848082. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

Summary - Print Book of David Hillier's CorporateFinance 4/e

  • 1 introduction

  • Purpose of firm
    Create values for owners
  • What does balance sheet show
    Activities of firm at single point in time
  • What are assets
    Valuable things owned by company
  • What are liabilities
    Show how assets were financed
  • Current assets
    can be converted into cash quickly
  • Non current assets
    Cannot be cash quickly, cant be sold quickly
  • How to invest in assets
    Firm needs to raise money
  • Various forms of financing
    Right side of bs
    1. current liabilities
    2. non-current liabilities
    3. shareholders equity  
  • Current liabilities
    Obligations need to be repaid in 1 year
  • Non current liabilities
    Dont have to be repaid in one year
  • Shareholders equity
    Difference between assets and liability
    represents money that belongs to shareholders
  • In what non current assets should firm invest
    Capital budgeting
  • How can firm raise cash for capital expenditures
    Capital structure
  • How to manage short term operating cash flows
    Net working capital
  • Capital budgeting
    Making and managing expenditures on long term assets
  • Capital structure
    Mix between  debt and equity 
    Can raise capital by
    1. issuing bonds
    2. issuing shares
  • Creditors, bondholders, debtholders
    People, institutions that lend money to firm
  • Shareholders
    Holders of equity
  • Value of firm (V)
    V = D + E
    D = market value of debt
    E = market value of bonds
  • Net working capital
    Difference between current assets and current liabilities
  • Why is little net working capital dangerous
    1. Cant finance short term operations
    2. No money for emergencies
  • High net working capital
    Company not using money efficiently, extra cash be used for investments
  • CFO
    Most important financial role within company
  • Treasurer
    Report to CFO
    1. responsible for handling cash flows 
    2. Managing capital expenditure
    3. Making financial plans
  • Controller
    Handles accounting function (handles accounting function, taxes, financial management accounting and information systems.
  • Financial's managers job
    Create value from firm's capital budgeting, financing, net working capital activities
  • How is firm's value created
    Ensuring that firm generates more cash flow than it uses
    1. Through buying assets that generate more money than they cost
    2. Selling bonds, shares that raise more cash than they cost
  • Features to consider when analysing cash flows
    1. Timing, prefer to receive cash flows early 
    2. Risk, amount+timing of cash flows are usually unknown
  • Accounting
    Revenues are recorded when customer hasnt paid yet
  • Corporate finance
    Interested in cash flows, value creation depends on exact time firm receives money
  • Most important principle corporate finance
    $x is now worth more than same amount $x in future 
    receiving cash flows better earlier
    investors choose investment with least risk due to aversion to risk
  • Goal financial management
    Maximise value of company's equity shares
    studies relationship between business decisions and value of shares in the business
  • When firms require cash to invest in new projects
    1. Borrow funds
    2. Sell part of firm's ownership
  • Financial markets
    Issuing debt or equity securities
    composed of money and capital markets
  • Money markets
    -For debt securities that pay off in short term
    -loosely connected markets -> dealer markets
  • capital markets
    For long term debt and equity shares
  • Dealer markets
    -Dealer buys from A sells to B for higher price
    -has inventory risk, value sold can be lower than bought
  • Bid-ask spread
    Difference between value sold and bought
  • Agency market
    A hires agent, gets commission on sales prices 
    agent doesn't carry risk
  • Money brokers
    Specialised in finding short term money for borrowers and placing money for lenders
  • Financial market classified into 2
    1. Primary market
    2. Secondary market
  • Primary market
    Used when governments and public corporations sell securities for first time. Corporations raise money through public offerings or private placements
  • Underwriting syndicate
    buys new securities for own account, resells at higher price
  • Transactions in secondary market 2x
    Involve owners and creditors selling and reselling to each other
    1. Dealer markets
    2. Auction markets
  • Dealer markets
    Dealers buy for themselves at own risk (over the counter markets)
  • Auction markets
    Physical location, match buyers and sellers directly
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Latest added flashcards

When do bidders want to pay cash when equity?
Firms prefer acquiring equity when their own equity is overvalued.
Coinsurance effect
When both firms in merger have debt 
1. In case of 1 bankruptcy, can be paid from profit of 2nd firm
makes debt securities less risky
Cant produce increased value by itself, systematic risk cant be eliminated.
Earnings growth
Market realises that combined firm is worth sum of values of separate firms
Bad reasons to merge
1. Earnings growth
2. Diversification growth
Tax inversion
When firm merges with competitor in lower tax country, relocates headquarters to that country
Tax reduction can occur through
1. Use of tax losses
 2. Use of surplus funds
3. Tax differentials across countries
4. Use of unused debt capacity 
5. Tax inversion
Merger leads to cost reduction
1. Technology transfer
2. Complementary resources
3. Elimination of inefficient management 
4. Economies of scale
5. Economies of vertical integration
Sources of synergy
1. Revenue enhancement
2. Strategic benefits
3. Marketing gains
4. Market or monopoly power
Rational reason why mergers occur
when value of post merger firm is greater than sum of value of initial individual firms