What is CFDM? #
Concept #
- It is about corporate decisions that have financial implications or affect the finances of a business
Three key points #
Investment policy
- Which project should the firm undertake?
Financing policy
- How does the firm obtain funds
Payout policy
- How does the firm return the cash to its owners?
Diagram of the big picture #
Firm’s prioritized mission: To maximize shareholder’s value
The cycle of the three key points
- Financing policy: Investers provide capital to the firm
- Through debt and equity
- Investment policy: Assets generate cashflow
- Current assets (Which does not need initial investment)
- Fixed assets
- Tangible assets (Assets in place): tend to benefit raising funds from debt
- Intangible assets (growth assets): tend to be a smaller proportion of the firm
- Payout policy: Firms pay returns to the shareholders
- Discussed later
Financing #
Raising equity capital #
Unlisted firms
- Private Equity Financing
- Angel finance
- Venture capital
- Initial public offering(IPO): Listing shares first time
Listed firms
- Private placement
- To small group of investors
- Rights issue
- To existing shareholders
- Dividend reinvestment plan
- To existing shareholders(offered to reinvest dividend to apply for new shares)