Course Notes

Introduction to Corporate Finance

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Advance Your Career

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Introduction to Corporate Finance

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Overview of Corporate Finance

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Objectives

• This course will teach you to:

• Capital markets

• Business Valuation

• M&A

• Debt and Equity Financing

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Key Players in Capital Markets

• Corporations

• Banks

• Institutions

• Accounting Firms

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Key Players in Capital Markets

• Fund Managers

• Investment Banks

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Capital Raising Overview

• Corporate finance has two main sides: M&A advisory and Capital Raising

• In capital raising, a corporate finance department or firm will help another

firm raise debt or equity financing by underwriting

• As an underwriter, the contract can be for “firm commitment”, “best efforts”

or “all-or-nothing”

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Capital Raising Process

• Underwriting involves book building: which is the process of finding buyers

for the client firms issue

• Key issues in pricing are: price stability, buoyant after market, depth of

investor base and access to market

• Under-pricing is a possible strategy that makes it easier for the

underwriting firm, but minimizes returns for the issuing firm

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Capital Raising Process

• The pricing process compares full value against the pricing range

• The difference is the IPO discount

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Business Valuation

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Comps, precedents and DCF

• Public comparable and precedent transactions valuation are relative equity

valuations

• Discounted cash flow is a stand-alone valuation technique

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Enterprise and Equity Value

• Enterprise value is the sum of market capitalization and market value of

debt, net of cash

• Equity value is simply market capitalization

• The first is used for EV/EBITDA, EV/Sales, and similar multiples

• The second, on the other hand, is used for stock price multiples

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Drives of value and price

• The DCF perpetuity formula succinctly shows what drives value

• Intrinsic value is increased by factors that increase the present value of a

perpetuity, such as an increase in free cash flows, or an increasing growth

rate

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Drives of value and price

• However, value is also driven by:

• Synergies and strategic value

• Deal structuring

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 DCF Analysis

• The DCF Analysis takes the present value of future cash flows as the

intrinsic value of the firm

• The proper discount rate is the weighted average cost of capital, which will

depend on the capital structure

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Mergers and Acquisitions

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Acquisitions Process

• The course outlines a 10 step acquisition checklist to makes the process of

acquiring a business run more smoothly

• For example, the first few steps involve developing an acquisition strategy

and then screening for ideal targets

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Types of buyers

• The two main types of buyers are: strategic buyers and financial buyers

• Strategic buyers acquire for vertical or horizontal synergies

• Financial buyers acquire to maximum equity returns and resell the

business later one

• Bidding is typically competitive

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Valuation process

• First, the target must be valued alone

• Next, the combined firm must be valued

• Synergy value is created when the total value of the combined firm is

higher than the sum of the target plus the acquiring firm

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Financing M&A

• M&A can be financed through senior debt, mezzanine debt and equity

• Each of these types of debt have different repayment profiles

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Debt Financing

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Debt Capacity

• Debt capacity is how the level of a debt a business can handle without

becoming destitute

• This involves looking at certain metrics, as well as balance sheet and cash

flow items

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Senior Debt

• Senior debt is at the top of the capital stack

• Senior debt can consist of several different loan terms, and even revolving

credit facilities

• After debt and equity financing, any funding gaps can be filled in with

subordinated debt

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Subordinated Debt

• Subordinated debt consists of high-yield (junk) bonds, mezzanine debt and

financing, PIK notes and vendor notes

• This increases return but also increase dilution

• It is important to consider risk and return when handling subordinated

debt

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Equity Financing

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Types of Equity

• Equity can consist of common shares, preferred shares, and shareholder

loans

• There also exist private equity funds that branch into two strategies

• These two are: venture capital and leveraged buyout funds

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Private Equity

• When dealing in private equity, exit strategies must be considered

• This would include considering when and how the investor plans to exit

• A share repurchase would entail a full exit, for example

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Preferred Shares and Ratchets

• Shareholder loans involve equity financing that leave a significant amount

of equity with management

• Preferred shares have a par value, for which they are redeemable

• These shares also pay a guaranteed dividend to shareholders

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Preferred Shares and Ratchets

• Equity ratchets are used to balance expected vs actual performance

• This involves rebalancing certain funding sources, or perhaps making

repayments and repurchases

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Corporate Finance Careers

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Career Map

• Our course takes the CFI career map, which details the different fields

found under the sell side, the buy side, corporations and public accounting

• We also go through the differences between each of the larger fields

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Top 5 Career Hacks

1. Don’t join a club; start your own

2. Enroll in the CFA exam to be able to network

3. Publish your own articles on Seeking Alpha

4. Enter NIBC

5. Build a model for a company you want to work for

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com

 Advance Your Career

© 2017, all rights reserved. https://www.corporatefinanceinstitute.com