Corporate Finance: Economic and Investment Structures

Economic and Financial Structure

Economic structure: Investment assets.

Financial structure: Financial investment of assets.

Financing Sources

• Internal financing: Money generated by the company, including reserves, depreciation, and provisions.
• External financing (Equity): Capital sourced from the company's own equity.
• External financing (Debt): Debt contracted to finance assets, involving interest payments and associated costs.
  • Short-term: Loans, credit policies, suppliers, and factoring.
  • Long-term: Loans, credit policies, leasing, and renting.

Investment Fundamentals

Investment: The application of financial or external resources for the acquisition of assets or financial products with the intention of obtaining long-term yields.

Elements of investment: Initial outlay, net cash flows, residual values, and time.

Investment Selection Methods

Static Methods

These methods do not account for the time value of money:

• Net cash flow per unit of total monetary commitment.
• Payback period: The time required to recover the initial investment; shorter periods are preferred.

Dynamic Methods

These methods account for the changing value of money over time:

• NPV (Net Present Value): The difference between the initial outlay required for an investment project and the updated value of expected net cash flows.
• IRR (Internal Rate of Return): The discount rate that makes the NPV equal to zero, representing the effective yield of an investment project.