Corporate Finance Flashcards
information asymmetry
information asymmetry between shareholders and managers decreases the ability of shareholders or non-executive directors to monitor and evaluate whether managers are acting in the best interests of shareholders
Ordinary resolution – questions? simple or super majority?
approval of auditor and the election of directors, a simple majority of the votes cast.
Other resolutions (regarding a merger or takeover, amendment of corporate bylaws) =special resolutions – require a supermajority vote for passage (2/3 or 3/4 votes cast). Such special resolutions can also be addressed at extraordinary general meetings.
types of general meetings
annual general meeting, extraordinary general meeting
types of voting
majority and cumulative voting (shareholders can cast all their votes (shares times number of board position elections) for a single board candidate or divide them among board candidates)
Activist shareholders tactics
by initiating shareholder lawsuits, proposing shareholder resolutions for a vote, proxy fight, tender offer
proxy fight
In a proxy fight, the activist shareholders typically solicit (добиваться) proxy votes from other shareholders, which they then use to vote in favor of their proposals or nominees.
tender offer
A tender offer is a public offer made by activist shareholders to purchase a significant portion or all of the outstanding shares of a publicly traded company, known as the “target company,” usually at a premium price to the market value.
hostile takeover
replacement of senior managers or/and boards of directors
collateral
a specific asset against which the bondholders will have a claim if the company defaults on the bond.
Creditor committees
Creditor committees may form among bondholders to protect their interests when an issuer experiences financial distress
responsible investing
a broad term for considering ESG factors in investment decisions
sustainable investing
investing in companies or industries based on the perceived sustainability of their output
socially responsible investing
choosing investments based on the investor’s moral or social values
Full integration
Full integration refers to the inclusion of ESG factors or ESG scores in traditional fundamental analysis. A company’s ESG practices are included in the process of estimating fundamental variables, such as a company’s cost of capital or future cash flows.
Thematic investing
Thematic investing refers to investing in sectors or companies in an attempt to promote specific ESG-related goals, such as more sustainable practices in agriculture, greater use of cleaner energy sources, improved management of water resources, or the reduction of carbon emissions.
Engagement/active ownership
Engagement/active ownership investing refers to using ownership of company shares or other securities as a platform to promote improved ESG practices.
Green finance
Green finance refers to producing economic growth in a more sustainable way by reducing emissions and better managing natural resource use.
business model
business model offers detail about how a company proposes to make money
financial plan
financial plan – detailed financial projections for revenue and expenses, as well as plans for financing the business.
components of business model
Identify the firm’s potential customers
Describe the firm’s product or service
Explain how the firm will sell its product or service
Describe the key assets and suppliers of the firm
Explain its pricing strategy
types of price discrimination
tiered pricing (volume of purchases), dynamic pricing (time), auction pricing (e.g., eBay)
Bundling
Bundling—Where multiple products are complementary (e.g., a furnished apartment), bundling the products may be a profitable strategy
Penetration pricing
Penetration pricing—A company offers a product at low margins or even at a loss for a period of time to grow market share and achieve greater scale of operations. Netflix has followed this strategy to grow its subscriber base rapidly.
Other pricing models
Penetration pricing, Freemium pricing, Hidden revenue. + alternatives to outright purchase: Subscription model, Fractional ownership, Licensing, Franchising (similar to licensing, but a franchisee typically is permitted to sell in a specific area and pays a percentage of sales to the franchisor, which provides some level of product and marketing support).
Other business models
Private label manufacturers—Companies produce products for others to market under their own brand name, for example, Costco’s Kirkland branded products.
Licensing agreements—A company brand is used by another company on its products for a fee, such as a lunch box branded with a Marvel character.
Value-added resellers—Offer such things as installation, service, support, or customization for complex equipment.
E-commerce models
Affiliate marketing—Another company is paid a commission for measurable marketing results such as page views, leads, or sales.
Marketplace businesses—Provide a platform for buyers and sellers but do not own the goods being sold. The company eBay is a prime example of a marketplace business.
Aggregators—Provide a marketplace but sell products and services under its own brand name. Spotify is an example.
Network effects refer to the increase in the value of a network as its user base grows. There are many examples of this including WhatsApp, eBay, and Facebook. Network effects support an initial strategy of penetration pricing.
value proposition VS value chain
A firm’s value proposition refers to how customers will value the characteristics of the product or service, given the competing products and their prices. How the firm executes its value proposition is referred to as its value chain.
Industry risk factors include
Industry risk factors include cyclicality, industry structure, competitive intensity and dynamics, and long-term growth expectations.
operating cash flow (formula)
CF(O) = NI + depr - div
Terms of “2/15 net 45” – meaning
if an invoice is paid within 15 days, the customer receives a 2% discount. The full amount of the invoice must be paid within 45 days
Uncommitted line of credit
lines of credit
Uncommitted, committed + revolving – unsecured
Short-term financing is typically collateralized by receivables or inventory and longer-term loans are secured with a claim to fixed (longer-term) assets. The bank may also have a blanket lien, which gives it a claim to all current and future firm assets as collateral in case the primary collateral is insufficient and the borrowing firm defaults.
Factoring
Secured (asset-backed) loans are backed by collateral, for example, fixed assets, receivables, or inventory. Factoring refers to the actual sale of receivables at a discount from their face value.
Web-based lenders
Web-based and non-bank lenders typically lend to medium-to-small-size firms and typically charge fees in addition to interest charges.
sources of ST financing for companies
lines of credit, debt
2 types of debt companies can issue
public debt (trades on public markets) or private debt (provided by private entities and not actively traded).
commercial paper: maturity, supplement
Maturities on commercial paper range from a few days to one year (272 days in the U.S.). The debt is unsecured and typically supplemented with a backup line of credit that will provide funds if markets for commercial paper are disrupted so that a company cannot replace maturing commercial paper with new paper.
