Corporate Finance Fundamentals

What is Corporate Finance?

All activities related to obtaining resources under favorable conditions and their effective implementation to achieve company goals.

• Obtaining funds from advantageous sources, evaluating beneficial resources.
• Applying resources effectively.
• Financial planning: anticipating and providing resources.
• Financial control: monitoring resource performance.

Profit vs. Wealth Maximization

• Profit Maximization: Short-term focus on eliminating waste, proper maintenance, and quality raw materials.
• Wealth Maximization: Long-term focus on increasing share price and company value.

Conflicts Between Owners and Managers

• Managers have contractual wages, while owners have residual pay, leading to conflicts of interest.
• Owners may prefer higher-risk projects, while managers are more cautious.
• Conflicts can be resolved through compensation and control mechanisms.

Legal Forms of Companies

• Individual: Single owner, using the owner's corporate name.
• Corporate: Two or more persons, including:
  • Limited Liability Corporations (LTDA): Capital set by quotas in the social contract.
  • Corporations (SA): Capital divided into shares, with limited liability for shareholders.

Fundraising Methods

• Funds generated by the company.
• Debt capital (loans).
• Capital markets (issuing new shares).

Balance Sheet

Right Side (Liabilities) - Funding Decisions

• Current Liabilities: Short-term obligations (salaries, suppliers, taxes).
• Noncurrent Liabilities and Net Worth: Long-term financing sources (debt capital and equity).

Left Side (Assets)

• Assets: Liquid capital (cash, bank, short-term investments, accounts receivable, inventories).
• Noncurrent Assets: Productive capacity resources (buildings, machinery, equipment).

Key Financial Metrics

• Return on Equity: (Net Income / Shareholders' Equity - Retained Earnings) x 100
• Equity Investment: Application + Net Income

Role of Financial Markets

Intermediation of funds between surplus and deficit agents in society.

Segments of the Financial Market

Cash, credit, capital, and foreign exchange.

Economic Policies

• Monetary: Government control of interest rates and money supply.
• Fiscal: Decisions on government spending and taxation.
• Exchange: Decisions on currency valuation.

Users of Accounting Information

• Suppliers: Assess company liquidity.
• Customers: Evaluate supplier stability.
• Financial Institutions: Determine ability to pay debts.
• Competitors: Analyze strengths and weaknesses.
• Shareholders: Assess investment potential.
• Management: Monitor performance.