Financial Analysis. Lesson 32. Corporate Finance and Capital Structure Optimization
Financial Analysis. Lesson 32. Corporate Finance and Capital Structure Optimization
Corporate finance manages a company's funding, capital structure, and investment decisions.
Capital structure refers to the mix of debt and equity financing.
Debt financing involves borrowing funds to finance company operations and growth.
Equity financing raises funds by selling ownership stakes in the company.
Optimal capital structure balances debt and equity to minimize capital costs.
Weighted Average Cost of Capital (WACC) calculates a firm’s average financing costs.
Debt-to-equity ratio measures financial leverage by comparing debt to equity.
Interest coverage ratio assesses ability to cover interest expenses with earnings.
Leverage amplifies returns by using borrowed funds for investments.
Dividends distribute profits to shareholders as a reward for investing.
Share buybacks repurchase outstanding shares to increase shareholder value.
Cost of debt is the effective interest rate on borrowed funds.
Cost of equity estimates the return required by shareholders.
Convertible debt can be converted into equity, offering flexibility to investors.
Debt covenants impose conditions on borrowers to protect lenders’ interests.
Internal rate of return (IRR) calculates profitability by discounting future cash flows.
Capital budgeting evaluates potential projects based on expected returns and costs.
Cash flow management optimizes cash inflows and outflows for operational stability.
Free cash flow (FCF) shows cash available after essential expenses are paid.
Net present value (NPV) assesses project value by comparing future cash flows.
Earnings per share (EPS) indicates net income earned per outstanding share.
Dividend policy determines the frequency and amount of dividend distributions.
Payout ratio calculates the percentage of earnings paid as dividends.
Financial flexibility allows a company to adapt quickly to opportunities.
Retention ratio measures portion of earnings retained for future growth.
Debt capacity is the maximum amount a company can borrow without risk.
Asset turnover ratio shows how efficiently a company uses assets for revenue.
Cash conversion cycle measures the time to convert inventory into cash.
Return on invested capital (ROIC) evaluates return on all invested capital.
Financial distress is the risk of failing to meet financial obligations.
Technical Examples:
WACC helps determine the ideal capital structure for minimizing costs.
Leverage increases potential returns by financing growth through debt.
Debt covenants protect lenders by imposing restrictions on borrower actions.